What Will Be The Implications Of Modi 3.0? Nomura Explains

Global brokerage Nomura said exit polls in India after recently concluded general elections suggest the incumbent National Democratic Alliance (NDA) coalition, led by the Bharatiya Janata Party (BJP), will return to power with a clear majority.

“On average, exit polls predict 366 seats for the NDA, above the simple majority (272 seats), which is higher than the 2019 seat count (353) and our investor poll (344),” Nomura said in a note.

While the exit polls do not give the count for BJP, we assume this suggests that the BJP should get around 305-320 seats, well above its 2019 performance of 303 seats and market expectations of 297 seats, it added.

Upside Risk

Nomura said in both the 2014 and 2019 elections, the average of polls underestimated NDA seats by around 50. If a similar trend plays out this year, the final results on 4 June would be even better than the exit polls are suggesting, it added.

The brokerage noted that among the various exit polls that have historically been more accurate, Today’s Chanakya predicts 400 seats for the NDA and 335 seats for the BJP alone.

Economic Implications

Nomura said if the exit polls are correct, this would be seen as a resounding endorsement of BJP’s policies by the voters and suggest a pro-incumbency wave, especially if BJP’s performance in 2024 is better than in 2019.

“From an economic perspective, this would imply policy continuity, a sustained focus on capital expenditure, fiscal consolidation in the final budget and potential factor market reforms,” it added.

FX Strategy

With exit polls suggesting the BJP will likely secure slightly more than a simple majority, Nomura said it expects positivity for local markets through foreign portfolio inflows and the selling of USD/INR.

“Overall, we favor short USD/INR, with a high conviction level of 4/5, targeting 80.8 (around 3.1% total gains) by mid-July,” it added.

Equity Implications

Nomura said it expects the equity market to react positively in the near term, in the case the exit poll results translate to actual results on 4 June.

The brokerage noted that unlike in past elections, the outperformance of Indian equity markets to other benchmark indices like S&P and MSCI Emerging Markets in the run-up to this election has been less strong.

“If the NDA forms a stable government, as predicted by the exit polls, we would expect FII flows to improve,” it added.

Nomura also expects domestic sectors, particularly those related to infrastructure, manufacturing and the capital expenditure theme, to outperform in the near term.

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