Narendra Modi seeks to form government after electoral setback in India

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Narendra Modi will begin talks to form a government with smaller partners a day after election results showed Indian voters handed his Bharatiya Janata Party a weakened mandate, in the prime minister’s biggest political setback in his decade in power.

Indian stock markets rose slightly in early trading on Wednesday after heavy selling the previous day in response to the split election result, which portended a less stable political outlook for the prime minister’s third five-year term.

The Nifty 50 index of India’s top shares rose 0.7 percent on Wednesday after suffering a 5.9 percent fall the previous day, mirroring a similar rise and fall of the benchmark BSE Sensex index.

Final results released overnight showed the BJP had lost its majority for the first time since 2014. The ruling party won 240 seats in India’s 543-seat Lok Sabha, or lower house, where it will remain the largest party. .

Modi said on Tuesday afternoon that he planned to form a government with smaller parties in his National Democratic Alliance, which won another 53 seats, giving the prime minister’s bloc a potential majority of 293 seats.

But the opposition INDIA bloc, led by the former ruling Indian National Congress, performed better than expected, winning 234 seats.

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The results were an unexpected blow to Modi and the BJP, which in the run-up to the elections had targeted as many as 400 seats for the NDA. The BJP also lost ground in some of its traditional strongholds, including India’s most populous state, Uttar Pradesh, in the north.

Indian newspapers offered frank assessments of the setback suffered by Modi and the BJP. “India gives third term to NDA, a message to Modi,” read a headline in The Indian Express. The Telegraph, a newspaper published in Calcutta, in opposition-ruled West Bengal, proclaimed: “India reduces Modi.”

Markets plunged on Tuesday in response to the results, after exit polls released over the weekend projected a landslide victory for Modi.

Shares of companies owned by Modi ally tycoon Gautam Adani led the sell-off with double-digit declines and fell further in early trading on Wednesday, with Adani Enterprises losing 2.8 percent and Adani Ports and Economic Zone Special falling 2.9 percent.

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Bernstein predicted that the BJP and NDA would likely “go ahead with the rituals of forming a government,” while outlining a “low probability” outlook in which the opposition could “snatch key allies” from the BJP.

Analysts said Modi’s defeat may make it more difficult to implement bold reforms in areas such as labor and land use that they believe India needs to become a manufacturing powerhouse and attract more investment from China. But they added that it could limit the BJP’s nationalist goals and realign the party toward core economic issues.

The weak results “could persuade Modi’s BJP to focus more on economic reform and job creation” and “soften” its Hindu-majority “ethnic messaging,” said Hasnain Malik, Dubai-based emerging markets strategist at Tellimer. .

Arnab Das, global market strategist at Invesco in London, said there is “probably still a sweet spot for markets and reform expectations,” but added that the outcome “may make it more difficult to unlock the labor market and the market.” of lands”. ”, which involves implementation by all 28 states of India.

The difficulty for the incoming Modi government “will be how to generate more inclusive growth, how to generate more employment to take advantage of this demographic dividend,” Das added. “The challenge is how to get there with a slim majority.”

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