Election results give Indian markets reason to cheer amid global risks

Brokerages see policy continuity and stronger political stability after state poll outcomes, but caution that global risks, oil prices and currency pressures may weigh on markets in the near term

A decisive set of state election outcomes has prompted brokerages to strike a broadly constructive tone about markets, with expectations of policy continuity and improved political stability, even as global headwinds and macro risks cloud the near-term outlook.

 

Analysts read the verdict as a signal of strengthening alignment between the Centre and key states — something that could aid reforms and infrastructure spending. At the same time, investors remain cautious about external risks such as oil prices and currency pressures.

 

Motilal Oswal said the results reinforce confidence in the National Democratic Alliance’s (NDA’s) policies at the Centre with implications beyond immediate market sentiment.

 

“The state election verdict will be viewed positively by the market, not only for the message of a progressive change but more from the lens of policy continuity as the hands of the ruling NDA have become stronger and any faint memories and concerns of 2024 Lok Sabha setback have been convincingly wiped. The results have longer-term implications on the economic growth of involved states, especially the momentous transition for West Bengal, which will play out over the years. Once the results are digested and their positive undercurrent well noted, markets will quickly shift focus to the more immediate developments in the West Asia war and the 4QFY26 earnings season.”

 

Economists also highlighted that a stronger political mandate could marginally ease concerns about India’s risk premium, particularly amid global uncertainties. 

 

Nomura said the verdict could support investor sentiment, flagging potential policy moves on fuel pricing as a “key monitorable”.

 

“The strengthening of BJP’s political foothold may reduce India’s political risk premium at the margin, especially amid the energy shock. Markets are wary of the prospects of hikes in petrol and diesel prices now that the state elections are over. However, this is not a done deal yet, in our view,” said Sonal Varma, chief economist, India and Asia ex-Japan, Nomura.

 

Beyond domestic politics, macro strategists emphasised that markets remain heavily influenced by global developments, particularly crude oil prices, currency movements, and capital flows.

 

Radhika Rao, senior economist and executive director of group research at DBS Bank, cited risks that could shape markets in the near term. 

“Beyond the election results, markets eye the likelihood of an increase in the domestic retail fuel prices, as Brent prices stay stubbornly above $100 per barrel. Pump prices were last raised in March 2022, followed by excise cuts in May 2022 and another price reduction in March 2024. Indian rupee asset markets are still beholden to global developments, especially the absence of concrete progress in the US-Iran negotiations and delay in reopening of the Strait of Hormuz,” she said.

 

The rupee was “back up towards the $95 handle this week, on the back of persistent foreign portfolio outflows from the equity market and we expect further upside given the unfavourable risk backdrop.

 

“Press reports cited ongoing discussions within the central bank to boost foreign exchange buffers and draw inflows, including a facility to attract non-resident inflows and removal of withholding tax on offshore bond investors. A double whammy for inflation by way of impending El Nino risk and consequent impact on this year’s summer monsoon is also a concern. The next forecast update by the meteorological agency will be watched with interest. Benchmark bond yields are also expected to stay bid as markets price in tightening moves and risks to the fiscal outlook on account of higher subsidies,” said Rao.

 

Brokerages underlined that the election results strengthen the broader narrative of India’s political stability amid a volatile global backdrop.

 

Macquarie said greater alignment between state and central governments could translate into more coordinated policymaking and improved execution.

 

“We believe [Prime Minister Narendra] Modi’s efforts to consolidate his position across several states since the underwhelming performance in the May 2024 elections support greater political stability and economic development. Alignment between BJP-led state governments and the BJP-led central government should enable more coordinated policymaking and development. Against a backdrop of limited political stability globally and rising geopolitical tensions, we believe India stands out,” said Suresh Ganapathy, managing director and head of financial Services, Macquarie.

 

However, the brokerage flagged state-level fiscal concerns as an area to watch.

 

“Tamil Nadu, Assam, West Bengal and Kerala currently have fiscal deficits above 3 per cent. The 16th Finance Commission (for 2026-31) has recommended a strict annual fiscal deficit limit for states at 3 per cent of their gross state domestic product, and all four states currently are in breach of this 3 per cent target,” it said.