BJP win in 3 states positive, expected to calm mkt over policy risks: Nomura

India's state election results Lin three key Hindi heartland states - Madhya Pradesh, Rajasthan and Chhattisgarh -- with a decisive win for the ruling Bharatiya Janata Party has come as a positive surprise and is expected to ally market concerns over political risks and fiscal populism at the margin, according to Nomura analysts. The Rating agency notes the BJP's win as an endorsement of Prime Minister Narendra Modi's continued mass appeal, which also reflects the ongoing trend of competitive populism.

- NIVEDITA MUKHERJEE

According to the Nomura report by Sonal Varma and Aurodeep Nandi, some investors were worried that a poor showing by BJP in the state elections would increase the risk of more fiscal populism. "The actual results should calm such fears," say Varma and Nandi. However, the analysts believe that competitive populism will remain a theme for the 2024 general elections. While state election results have not been a good leading indicator of general election results, investors will most likely view these developments positively in anticipation of reduced policy risks into 2024. This is interesting in the context of a Crisil research on the capital outlay of top 18 states which is set to increase 18-20 per cent in this fiscal (FY24), following 14 per cent growth in fiscal 2023. Madhya Pradesh, Rajasthan and Chhattisgarh were among the key states surveyed in this report. In Madhya Pradesh, Rajasthan and Chhattisgarh, the increase in spending will be supported by healthy goods and services tax (GST) collection, stable and upfront devolution from the Central Government (share in central taxes, or SICT) and allocation of Rs 1.3 lakh crore (Rs 1 lakh