'Government policies may change after weak mandate', claims Bernstein report

The recent election results have given a surprising mandate, with the ruling Bharatiya Janata Party (BJP) winning a majority, although less than expected. This has been said in the Bernstein report. The Bernstein report anticipates an emphasis on direct social schemes to address voters' concerns, especially in rural areas where the BJP has suffered major losses.

The capital expenditure cycle is anticipated to be driven more by the private sector despite possible changes in policy, which lowers the risk to overall economic growth. As the importance of private sector investment increases, the government's role in capital expenditure is probably going to decrease over time. India's economic growth has historically been driven by investments, with significant contributions from government initiatives; consumption has, however, decreased. The outcome of the Lok Sabha election this time around will have a significant impact on market dynamics, policy, and direction in India. With the backing of its pre-election allies, the National Democratic Alliance (NDA) is ready to form the government even though the BJP was unable to secure an absolute majority.

The BJP has won 242 seats, short of the 272 needed for a majority, leaving it dependent on allies to retain power. The NDA has collectively won 294 seats, ensuring the return of the incumbent government. This coalition dynamic suggests a continuation of existing policies, as there are no major contentious issues within the coalition. However, the political landscape remains volatile, and any change in alliances could significantly alter the investment climate in India, although such a scenario is currently unlikely.

While the BJP has maintained a pro-growth, investment-focused manifesto, the electoral setback of losing seats could prompt the government to make changes to its policies. Job creation remains a challenge, especially in the agriculture sector, where growth in the workforce has not translated into higher productivity. The government's strategy to boost manufacturing and construction is seen as a long-term solution to these issues.

According to the report, market volatility is expected due to policy uncertainty in the new government. Financials sector remains a key overweight (OW) sector, with selective picks in other sectors, investors can remain underweight (UW) on small and mid-cap stocks (SMID) relative to large caps.