India's general elections have been declared, and the Model Code of Conduct (MCC) takes effect with the announcement. While political commentators are busy making predictions for the approaching elections, global brokerage giant UBS has provided its thoughts on three potential election results and their implications for the economy and markets.
UBS has expressed views on three possible outcomes: a BJP single-party majority, a BJP-led coalition, and an INDIA alliance-led coalition. However, the brokerage hasn't assigned a chance to each scenario. "However, our discussions with investors and valuation multiples suggest that the first two are largely priced in by the market," the overseas brokerage firm stated.
Various opinion surveys have suggested that the Bharatiya Janata Party (BJP), led by Prime Minister Narendra Modi, will win another landslide victory, giving him his third term in a succession. On the contrary, the endangered INDIA coalition is aiming to maximize its electoral prowess.
In the first scenario, if the BJP wins outright, UBS believes the focus would be on policy continuity, which might benefit business sentiment and the much-anticipated private corporate capex revival.
"In addition, further progress in supply-side reforms could be seen, including the clean energy transition, higher infrastructure spending, a manufacturing push and other targeted policy initiatives towards the youth, poor, women and farmers," it added.
In the second scenario, which assumes a BJP-led coalition government, reform momentum remains essentially comparable, but several harsh initiatives, like as disinvestment, a land bill, and a unified civil code, may not progress or are likely to be placed on hold, according to UBS. "However, comfort about fiscal discipline could be less of a concern for investors in this scenario," according to the report.
In the third scenario, in which the INDIA alliance dethrones Narendra Modi's BJP government, the economic policy approach would be broadly aligned, but markets may be concerned about fiscal discipline and a less decisive government, resulting in delays in implementing supply-side reforms, according to the international banker. "There could also be a delay in the private corporate capex recovery due to weaker business confidence caused by the surprise political outcome," UBS said in a note.
The Election Commission of India has published the calendar for the General Elections 2024, which will be held across the country in seven parts. The first phase will start on April 19 and end on June 1. The results of the electoral process will be announced on June 4.
Political parties release election manifestos outlining their promises/priorities, which typically encompass all main aspects of economic, social, development, and governance issues. Political parties are not legally bound to keep their manifesto.
UBS examined the general election manifestos from the previous four elections and determined that the Modi government outperformed the Congress in terms of delivering on its promises. The Modi administration's emphasis on balancing economic changes with social welfare programs for the bottom of the pyramid appears to have worked in their favor.
"Besides economic reforms, recent opinion polls suggest the government's handling of COVID-19, building the Ram Temple and the revocation of Article 370 have helped bolster support," UBS said in a press release. "However, unemployment and inflation remain key concerns."
