How the stock market viewed the Delhi assembly elections?

The Delhi assembly elections have come and gone and the outcome was largely on the expected lines. The ruling AAP returned to power with a big mandate although the NDA did manage to grab more seats and also increase its vote share. Let us look at the impact of the outcome of the Delhi elections on the stock markets and how to interpret the outcome.

Outcome of Delhi elections and the impact on markets

• There was some negative reaction to the exit polls that predicted a clear victory for the ruling AAP government. All the exit polls were virtually unanimous about the outcome although the actual numbers estimated did differ. In the aftermath of these polls, there was some disappointment in the markets as there late expectations that NDA could make a sharp comeback in the Delhi elections.
• However, the impact after the actual outcome was not very sharp and for the markets it was business usual. The limited disappointment after the exit polls had factored in the negatives and hence there was not much of downside in the markets left. The markets appreciated the fact that the voters in the state had lauded the good work done by the state on the education and health front.
• There were concerns if the reforms process would get disrupted if these elections went against the NDA. This was more akin to the situation in December 2018 when the NDA had lost power in the states of Rajasthan, Madhya Pradesh and Chhattisgarh, all situated in the Hindi heartland.
• In a way, there was an analogy with the current situation. In Maharashtra elections, the NDA had failed to form the government after the Shiv Sena decided to ally with the Congress and the NCP to form a state government under the leadership of Uddhav. This was despite the fact that the BJP and the Shiv Sena had fought the election together. In addition, the NDA had lost heavily in another Hindi heartland state of Jharkhand and Delhi was adding to that.
• However, general wisdom has prevailed in the market. The markets are realizing that people show different voting patterns in the state and at the centre. For example, the same AAP which won handsomely in the state elections was virtually routed in the central elections in all the Delhi seats. The markets have interpreted this as an indication that voters look for governments that are identifiable in the state but look for national power at the centre. That kind of underlines the impact of the NDA at the centre.
• There have been some concerns over the loss of states post the stunning victories of Uttar Pradesh and Assam. Gujarat was a close win for the ruling BJP and Karnataka they could only form the government on the second attempt. If you look at the NDA map, their spread has considerably reduced since late 2017 as they have lost a series of elections. This is something the party may have to ponder about.
• At a larger level, there seems to be an appreciation of the fact that the reforms process is largely irreversible. The last two elections at the centre in 2014 and 2019 have proved adequately that Indian voters do not seen an immediate alternative to the ruling combination. Also, even assuming that there could be some disruption at the centre, the impact on the economic reforms process is likely to be limited and muted.
• The markets would be keener to see the ruling combination at the centre focus more on reforms. The loss in Delhi was along expected lines. The markets have been delighted that the Modi government had been willing to take risks in areas like demonetization, insolvency, bank recapitalization, bank mergers, insurance privatization etc. That is what the market really wants. State elections can, at best, be an irritant in the larger scheme of things.

The big advantage for the ruling NDA and for the markets is that the people are now reconciled to a government formation that can perpetuate the reforms process and bring about economic growth. How the ruling NDA navigates these challenging times will be a critical test of how the NDA will fare in future state elections. For now, the Delhi elections are done and forgotten by the markets.

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