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Investor interest in Indian elections: What’s at stake?

By Rhea Nath
5 minute read

Ahead of the world’s largest election results this week, there is a predominantly positive market sentiment and a growing “business as usual” mindset.

On Tuesday, 4 June, the results of the six-week long national election are scheduled to be announced, with the incumbent Indian Prime Minister, Narendra Modi, expected to notch his third term in office.

According to investors, these elections carry “profound implications” for the Indian economy and equity markets, which are likely to see a boost this week.

Vivek Bhutoria, co-portfolio manager of the Federated Hermes Global Emerging Markets Equity Fund, highlights that Modi’s continued popularity remains a crucial factor in the ruling Bharatiya Janata Party’s (BJP) electoral prospects, with an approval rating ranging from 60 to 70 per cent during his tenure.


“A win for the BJP would be positive for market sentiment because it would encourage political stability and lead to the continuation of Modi’s reform program,” he told InvestorDaily.

Under Modi’s leadership, the government has implemented key reforms encompassing “bottom-of-pyramid” policies like financial inclusion and direct benefit transfers alongside rigorous economic measures such as corporate tax reductions, a privatisation agenda, and digital initiatives. Additionally, there has been a focus on “sensible” fiscal imperatives, including infrastructure investment and notable government capital expenditure.

Year to date, the NIFTY 50, the benchmark Indian stock market index that represents the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange, is up 3.4 per cent. It has returned 88.6 per cent in the last five years, which have seen a Modi leadership.

“A continuation of the incumbent government should provide continuity in policies, offering stability and predictability to investors,” Bhutoria explained.

“Key economic issues such as fiscal management, infrastructure development, taxation, and job creation feature prominently in election campaigns. Furthermore, the outcome of the elections could influence foreign investor sentiment towards India.”

Moreover, equity markets and economic growth are likely to be bolstered by a “pro-business and investor-friendly” government that will continue to attract foreign investment flows, he said.

Finisterre Capital’s chief investment officer, Damien Buchet, agreed there is unlikely to be a significant departure in policy terms with a Modi re-election.

“There may be some subsequent scope for further fiscal consolidation and possibly a couple of rate cuts, which could bring some short-term excitement to the Indian bond market, but that should not impact the market’s long-term low volatility behaviour, provided currency stability remains the norm,” he said.

Notably, June will also see Indian government bonds included in the JPMorgan Government Bond Index-Emerging Markets, believed to be India’s first-ever inclusion in a global bond index.

Bloomberg, too, has announced it will be adding Indian government bonds to its Emerging Market Local Currency Government Index from 31 January 2025.

Ahead of this benchmark inclusion, Aviva Investors has been increasing exposure to India, explained Nafez Zouk, emerging markets sovereign debt analyst at the firm.

“The prospect of sustained inflows in the coming months offers reassurance that downside risks are limited,” he said, while admitting Indian bonds “do not look especially cheap at current levels”.

Zouk expressed optimism ahead of the election results, noting the ruling BJP looks “certain” to win the vote.

“Although the party’s brand of Hindu nationalism has risked stoking social tensions, the prospect of continuity in economic policy making is likely to mean international investors put such concerns to one side, at least for now,” he said.

Earlier this year, the Indian elections, and its implications, were highlighted among the 10 geopolitical trends to watch in 2024 by Lazard Asset Management.

“With projected 6 per cent GDP growth and recent BJP in state elections, Modi’s position appears strong heading into the 2024 elections. However, the BJP risks undermining recent tailwinds with inflammatory Hindu nationalist rhetoric that could lead to sectarian violence and weaken recently gained investor confidence,” it said.

It cautioned: “India is not a monolith, moreover, and the investment opportunity is more complex than headlines suggest.”

Particularly, Lazard highlighted that two of the top state recipients of foreign direct investments – Tamil Nadu and Karnataka – are not run by the BJP and “centre-state dynamics can sometimes lead to uneven implementation of policy directives or political differences over rising regional inequality”.

Still, it conceded the India story “will occupy centrestage in the politics and economics of 2024”.