Analysts argue that a coalition government might not always be detrimental to the stock market, but it is important for the administration to have a clear and concrete plan for the duration of its tenure.
Analysts said that although market sentiment would undoubtedly suffer greatly in the case of a weak coalition or a change in government, it's crucial to keep in mind that India has many positive aspects that are unrelated to the current administration.
The aforementioned variables encompass favorable demographics, a well-educated population segment, a substantial local market, the combined effect of previous reforms, and worldwide driving forces including supply chain diversification and the acceleration of digitalization. This is not to argue that changes in policy won't have an effect, but it is to argue that, when making longer-term judgments, we shouldn't go too far in either direction, according to analysts at the Japanese research firm MUFG.
The reform momentum is expected to stay mostly the same for those at UBS as well in the event of a weakened BJP-led coalition, although several severe initiatives (including disinvestment, a land law, and a unified civil code) may not advance or may be placed on pause. Investors, however, could be less concerned in this situation about feeling comfortable about budgetary discipline.
The economic policy stance would be generally in line in a scenario where the INDIA block forms a weak coalition government, but markets could be concerned about budgetary restraint and a less decisive administration, which would cause delays in the implementation of supply-side measures.
In a recent report, they stated that "There could also be a delay in the private corporate capex recovery due to weaker business confidence caused by the surprise political outcome." What has been the performance of the Indian stock market during coalition governments?
The stock markets have not always suffered under a coalition administration. According to data from PMIndia.gov.in, from December 2, 1989, and October 10, 1990, the Sensex recovered 95.6% during the coalition administration led by Prime Minister VP Singh.
Sensex is Back
Between May 22, 2004, and May 22, 2009, Prime Minister Manmohan Singh of the United Progressive Alliance-1 (UPA-1) led the Indian stock market to its highest performance during a coalition administration. During this time, the Sensex had a tremendous spike of 179.9%, according to data from PMIndia.gov.in. The Nifty surged 73.6% under UPA-2, while the Sensex saw a gain of 78%. According to statistics, the Sensex increased by 61% between 2014 and 2019 under the leadership of the National Democratic Alliance (NDA) and Prime Minister Narendra Modi.
