Market Capitalization Plummets: Modi’s BJP Alliance Struggles to Retain Majority in India Elections

Mumbai, India – On June 4, a significant drop in the All India Market Capitalization index, tracked on the Bombay Stock index, resulted in losses of over 31.06 trillion rupees, or about $371 billion in a single day. The Sensex index wiped out all its gains for the year, transitioning from a 5.85% year-to-date increase to a 0.22% loss position. Similarly, the Nifty 50 recorded a drastic decrease from a 7% year-to-date gain to a mere 0.7% increase since the beginning of the year.

The political landscape in India saw Prime Minister Modi securing a rare third term in power, with the BJP winning 240 seats in the lower house parliament, falling short of a single-party majority in a more closely contested race than anticipated. Despite this, the BJP-led National Democratic Alliance (NDA) coalition managed to clinch 294 seats, exceeding the 272 seats required to form a government.

In the 2019 general election, the BJP secured 303 seats, with the NDA winning 353 seats. Modi had expressed confidence in March that the NDA would secure over 400 seats. The opposition Indian National Developmental Inclusive Alliance coalition, led by the Indian National Congress, performed better than expected by garnering 233 seats.

A report from Goldman Sachs issued early Wednesday suggested that even with a reduced majority, macro stability was unlikely to be compromised. However, a weaker mandate could pose challenges in implementing structural policy changes, such as land reforms to support manufacturing growth and agricultural sector reforms to enhance productivity growth. This marks the first time in the last decade that the BJP will govern without a majority in the Lok Sabha, the lower house of parliament.

Managing coalition partners who may seek key ministerial appointments poses the main challenge for Modi’s party. The government is expected to adhere to the fiscal consolidation path of 5.1% of GDP for the current fiscal year, with potential reallocation of spending towards welfare programs, according to analysts from Goldman Sachs.