In a surprising turn of events, India's recent general elections have brought about a negative twist, revealing the ruling NDA's return with a diminished majority. Despite expectations for a strengthened position, the NDA is now expected to secure around 290-300 seats, falling short of the robust majority predicted by exit polls. Particularly noteworthy is the BJP's performance, falling significantly shy of the majority mark with an anticipated 230-240 seats on its own.
Despite these political shifts, the fundamental trajectory of India's economy is expected to remain largely unchanged. Manufacturing will retain its emphasis, particularly due to its role in job creation. While there may be a slight tilt towards stimulating consumption, the overall impact is anticipated to be minimal. Although state budget deficits may widen, the consolidation of the central fiscal deficit seems secure.
Market sentiment is expected to take a hit, with higher perceived risks for India prompting a short-term derating. Sectors like PSUs and capital goods are deemed most vulnerable, while consumer-focused industries, such as FMCG and value retailing, are anticipated to thrive. Healthcare is also viewed favorably.
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