With a stellar performance in Karnataka elections, Prime Minister Narendra Modi has made his skeptics eat their words yet again.
The saffron party's success stood out because this was its first major victory in a key southern state under Modi's leadership. It was seen as a litmus test for the ruling party at the Centre in the runup to the big slugfest in 2019.
In all probability, the verdict will serve as a pointer of things to come. A host of states are going to elections over the next six months before the nation readies for general elections in 2019.
Expectations are running high that the BJP win will work wonders for the Modi government and give it more confidence to carry on with bold economic policies. Rural and infrastructure sectors, in particular, are going to get bigger attention.
Indranil Sengupta, India Economist, BofAML, said rural spend will go up ahead of the general elections.
In an interaction with ETNow, Sengupta said, "We are clearly looking at the step up in rural spend as we go towards general elections. Farm loan waivers, for example, could double to $40 billion by the time we have the general elections."
On how the saffron surge will change Modi's policies and politics, Amar Ambani, partner and Research Head, IIFL Investment Managers, said, "He gets bolder in reforms, given confidence of the win, despite steps like GST and demonetisation that caused disruption. Increase in tally in the Rajya Sabha is expected, which means reforms can pass through faster."
Investors cheered the BJP's success, as was evident from the 400-point jump as soon as results started trickling in. The market later gave up the gains as the picture changed with the second-placed Congress joining hands with third-placed JD-S to stake claim to form government.
The domestic stock market has of late been buffeted by sustained selling by foreign portfolio investors, a tumbling rupee and surging oil price.
"The verdict will be seen as a big sentimental positive for the indices, which were factoring in a severely fractured mandate. The market will take cues from this victory and expect similar result in the general elections of 2019. Stability in the government is what the stock market is seeking," said Ambani.
Foreign portfolio investors (FPIs) have net sold equities worth Rs 10,000 crore since the beginning of the ongoing financial year. Domestic institutional investors have bought shares worth a net of Rs 14,559 crore during the same period.
Geoff Lewis, Senior Strategist (Asia), Capital Markets & Strategy Team, Manulife Asset Management, said, "The concentration of elections is later in the year. It is something which foreign investors look at as a guide to the Modi administration's performance in terms of its popularity. I do not think it is critical in itself. Any major reversal is not expected."
Karnataka, currently ruled by the Congress, is home to India's own Silicon Valley, Bangalore. This is the first major state with an assembly election this year and three more are in line.
Lewis sees some more progress in key reforms related to public sector banking, real estate, GST and the like. "He could perhaps delegate a bit more. He seems to want to keep a tight rein on policies. It is a pretty strong record for his first term," he said.
"The victory will give more confidence to the government to continue on rural economy and infrastructure," said Sujan Hazra, chief economist at Anand Rathi.