State elections 2023 verdict: BJP emerges as the silent Tsunami

4 Dec 2023 , 11:02 AM

The BJP’s commendable performance in the four state elections has exceeded the expectations set by opinion/exit poll surveys. Analysts of IIFL Capital Services reiterate that BJP holds a pole position in the race for the 2024 national elections, based on their detailed seat-by-seat analysis; irrespective of the state elections outcome. While this verdict helps BJP to set a narrative in their favour — more importantly — it could impede welfarism/freebies culture as a means to achieve electoral victory or combat the anti-incumbency sentiments. These results are expected to be positive for the GDP growth and markets. Analysts of IIFL Capital Services build-in ~12% EPS Cagr for Nifty over FY24-26 and expect it to outperform other major indices over the next year. 

Reiterate analysts of IIFL Capital Services top picks: 

IndusInd Bank, SBI Life, Sun Pharma, Info Edge and BEL among the large caps; and Cummins, JB Chemicals, CMS Info and Ashoka Buildcon among the mid and small caps. Results summary: BJP shines in Hindi Heartland; Congress gets a face-saver in the South: Of the five states that went to polls, the counting has concluded in four states; while Mizoram counting has been deferred to 4th Dec. BJP posted a clear majority in Madhya Pradesh (incumbent), Rajasthan and Chhattisgarh; while Congress bagged Telangana. In all the three states where the BJP won comfortably, most surveys predicted a tougher battle with the Congress. However, Congress failed to build on the anti-incumbency in Madhya Pradesh, and could not retain Rajasthan and Chhattisgarh — especially the latter, which was earlier predicted to be a rather easy win. 

Morale booster for BJP; reiterate strong standing in 2024 national elections: 

Analyst of IIFL Capital Services seat-by-seat analysis for 2024 national elections (Click here) suggests that the Indian National Developmental Inclusive Alliance (I.N.D.I.A) is unlikely to dent NDA’s prospects of achieving a comfortable majority in 2024 elections; even assuming an effective vote transfer between the alliance partners. As such, analysts of IIFL Capital Services do not see the state elections results having any direct bearing on the 2024 General Elections, as the electorate tends to vote differently in the Centre and state elections. However, this will help BJP set a narrative in its favour — similar to what the Congress did after a thumping win in 2018 state elections. Also, with an improvement in the seat tally between 2018 and 2023, this will also result in a higher representation for the BJP in the upper house. 

Election freebies:

Will this verdict end race to the bottom? This time around, the state elections were increasingly dominated by freebies/welfare schemes targeted towards the sections of the electorate (like women welfare schemes etc.). Analysts of IIFL Capital Services estimate that these schemes could be 2-4% of the state’s GDP. While the Congress and BRS-led governments tried to counter anti-incumbency in Rajasthan/Chhattisgarh and Telangana respectively through aggressive schemes, only MP saw a return of the incumbent. This does not conclusively prove the effectiveness of freebies/welfare schemes on the electorate, and help could parties realise limitations of welfarism and the freebie culture. 

Opposition alliance for 2024: 

Where is it headed now? The I.N.D.I.A alliance seems to have made no meaningful progress w.r.t a common minimum programme, seat sharing, etc., with elections just four to five months away. Further, this win by the BJP in states is likely to get the opposition especially the Congress cadre demotivated, and possibly bring parties like the BRS closer to the centre. Differences between the alliance partners are in the open (eg: Samajwadi party and others); that might see ~190-200 Lok Sabha seats witnessing three or four-way contests in general elections, as against the intended two-way contest. 

Election results a positive surprise for markets, GDP growth: 

Results will be a positive surprise for the markets, with most surveys earlier predicting a tougher battle between the BJP and the Congress. Analysts of IIFL Capital Services consider these results positive for GDP growth too. Their Nifty EPS Cagr for FY24-26 is 12%; they expect Nifty to outperform other major indices over the next year. Analysts of IIFL Capital Services top large-cap picks include IndusInd Bank, SBI Life, Sun Pharma, Info Edge and BEL. Their top mid-cap and small-cap picks include Cummins, JB Chemicals, CMS Info and Ashoka Buildcon. Their top sells include Kotak Bank, TechM, Divis, Delhivery, Page and Dr Reddy’s.