The outcome of the Maharashtra assembly elections is expected to have minimal impact on the Indian stock market, although it could carry significant political implications, according to experts. Although state elections do not directly impact the functioning of the central government, they can still have some second-order effects.
Maharashtra is set to vote on Wednesday, November 20.
Experts highlight a close fight between the alliances led by the BJP and Congress. The return of the BJP-led alliance will signal policy continuity with emphasis on infrastructure and capital expenditure, while the victory of the Congress-led alliance may result in a shift in policies and perhaps more emphasis on rural welfare and a slowdown of some infra projects.
"A BJP-led alliance victory would signal policy continuity with emphasis on infrastructure and capex. A Congress-led alliance victory would drive a pivot to rural spending and a possible slowdown of some key infra projects. The fiscal discipline would be to watch out for, given the looming state debt on Maharashtra and two decades of financial indiscipline," said Emkay Global Financial Services.
Assembly elections might influence market sentiment temporarily, but they are unlikely to leave a lasting impact on the market.
A win or loss in these elections can influence public perception, confidence, and the popularity of the ruling or opposing party at both state and national levels. This shift in confidence can indirectly affect certain policy decisions and even the central government's approach on some issues.
According to Narendra Solanki, the head of fundamental research—investment services at Anand Rathi Shares and Stock Brokers, if the incumbent party retains power, we may not see a major shift in the current policy trajectory. Continuity would likely ensure the extension of existing policies and spending patterns. This stability can provide a sense of predictability for investors and markets, as the direction of governance is expected to remain the same.
However, Solanki added if a new party takes control, there could be a temporary period of uncertainty.
"The markets may react cautiously as they wait for clarity on the new government's stance on policy matters and their approach to economic and social issues. This period of indecision may last until the new government settles in and clarifies its priorities and policy direction," said Solanki.
Arpit Jain, Joint MD, Arihant Capital, underscored that the Indian market has been experiencing volatility and a corrective phase ahead of the assembly elections, driven largely by cautious sentiment around the BJP's potential performance.
Additionally, global factors have played a role, with capital outflows from emerging markets like India and South Korea into developed markets.
"Further sell-offs could occur if the BJP-led alliance faltered in key states such as Maharashtra. However, rather than focusing solely on state election outcomes, investors may consider gradually building positions and reducing cash exposure as part of a disciplined long-term strategy," said Jain.
Vishnu Kant Upadhyay, AVP of research and advisory at Master Capital Services, pointed out that the Indian benchmark indices staged a strong rebound ahead of Maharashtra's state assembly election on November 20.
Upadhyay pointed out that market expectations could be fueled by a clear mandate for a business-friendly government that will increase investor confidence and attract investments.
"The elections in Maharashtra are crucial and could affect the stock market because the state is one of India's most industrialised and substantially contributes to the nation's GDP," said Upadhyay.
"Following the formation of a new administration, investors will closely monitor policy pronouncements. Although the elections in Maharashtra are a significant event for the stock market, market performance is not solely determined by them. Additional elements, including the state of the world economy, company profits, and investor sentiment, are also quite important," said Upadhyay.
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