'It's the economy, stupid': one of the most famous political slogans in recent history was spoken by Bill Clinton, when he successfully ran for the US Presidency. Clinton had an uncanny political instinct for what worked, and knew that most voters when headed to the ballot box, are thinking about their economic future.

So when the BJP rode to victory in three out of four states this month, the voters were telling us something about the economy. And the markets seem all set for a Santa rally after these wins.

What explains the wins for the BJP? Well, let's go back to Clinton's slogan, and underline it. Over 2023, the Nifty 50 has surged by 14.2%, with sectors like fertilizers, telecommunications equipment and general industrials leading the gains over the past year. Tata Motors, Bajaj Auto and NTPC have risen the most in the Nifty 50 during the same period.

India has also been the fastest growing economy worldwide, boosted by positive signals like slowing inflation and falling crude oil prices. So across key state elections, it appears that the voters have placed their trust in the BJP over the opposition.

Markets celebrated the election wins: the Nifty index closed 2.1% higher on December 4, after the results. The rise took the Nifty to record highs on three consecutive days after election results. As we step into 2024, let’s look at where Indian equity markets are headed in an election year.

In this week’s Analyticks,

• Election results give the market a boost: BJP wins and macro factors fuel stock markets
• Screener: Stocks that soared in 2023, with high 1-year change % and the highest Forecaster estimates surprise % for revenue and net profit in Q2FY24 

Modi magic wins the Hindi heartland, signalling strong show for BJP in 2024 

The BJP won the Chhattisgarh and Rajasthan elections, seizing the states from the Indian National Congress (INC). It also beat anti-incumbency in Madhya Pradesh to secure a record fifth term. These wins come just six months before the general elections in 2024.

The pro-BJP tilt of the voters in these states is good news for the party ahead of the 2024 elections. The electoral success is also expected to boost India’s appeal to foreign investors, on the argument of political stability. 

Matthew Haupt, a portfolio manager at Wilson Asset Management, said, “The BJP’s victory will likely lead to continued capital inflows into India.” Markets are counting on a 2024 win - Chris Wood, the global head of equity strategy at Jefferies, said that an unexpected BJP defeat could cause a 25% correction in the market.

It's not as if analysts don't have any complaints about the BJP goverment. T N Ninan noted last week that "many Indian businessmen fear the BJP", and are afraid to criticize the governement, in case they send agencies to raid their offices or open an investigation. Overall however compared to Congress, the BJP is seen as better for business and the economy.

Stealing the opposition’s thunder: ‘Modi ki guarantee’ draws voters

The Congress had used what they called a 'guarantee card of promises' to win voters in the Karnataka state elections.  This time, the BJP launched a ‘Modi ki guarantee’ campaign to outshine the Congress party.

The BJP, once called the Brahmin-Bania-Zamindar party for its pro-business stance, has under Modi, focused more on welfare schemes. This was especially effective in Madhya Pradesh, where the BJP promised voters LPG cylinders at Rs 450 (a significant discount from the market price of around Rs 910) and free education to disadvantaged families. It also pledged additional benefits to farmers and the tribal community, at an estimated cost of around Rs 24,000 crore. 

A welfare scheme introduced by the BJP in Madhya Pradesh in June, the Ladli Behna Yojna, provides Rs 1,000 to over one crore women. The party promised to increase this to Rs 3,000 if re-elected. 

PM Modi's campaigning in these states was also a factor. At a 76% approval rating, Modi remains a popular figure, with the highest approval among global leaders, according to a survey by Morning Consult Political Intelligence. 

Ahead of the general elections, the BJP plans to continue focusing on welfare schemes. But rising food inflation could play spoilsport.

BJP’s tenure saw moderate GDP growth. But the future may be brighter

When we pull the curtain back and compare different Indian governments, the BJP's track record is not very shiny. Under BJP rule, India’s GDP growth has averaged 5.7% over the past nine years, below the average growth rate of 6.3% from 2000 to 2013. But this is partly on account of structural changes before Covid-19, and the impact of the pandemic itself. 

Pandemic and structural reforms drag average GDP growth during  BJP tenure

Structural reforms and policy changes, especially the implementation of the real estate Act RERA in 2016 and the GST in 2017, contributed to the growth slowdown. Demonetization also had an effect.

And while the government increased the capex budget significantly in the past nine years, private sector capex investment has been slow to pick up. 

History suggests markets are poised for a pre-election rally

Historically, the Nifty 50 goes up in the six months leading to the Lok Sabha election - it has risen in seven out of eight instances. The average gain during this period is 15.3%. The only exception is a 2% fall in 1998 when the BJP was re-elected. 

Indian markets have mostly risen leading up to the general elections

However, the six months after elections are volatile, even if largely positive. The two times markets fell during this period were in 1996 and 1998. 

Of course, past performance doesn’t always predict future results. The ruling party is riding high right now, and led by a popular leader. However, voter mood can quickly shift if prices rise or the economy worsens. The next few months will be an interesting watch. 

Screener: Stocks with high 1-year change % and the highest positive surprise for revenue and net profit

Jindal Saw gains the most in the past year

As we end 2023, let’s take a look at stocks that have surprised analysts positively in revenue estimates while posting gains over the past year. This screener shows stocks with a high 1-year change %, which also have the highest Forecaster estimates surprise % for revenue and net profit in Q2FY24.

The screener is dominated by sectors like realty, general industrials, cement & construction, banking & finance and utilities. Major stocks that appear in the screener are Jindal Saw, Ircon International, Prestige Estate Projects, Cochin Shipyard, Trent, Brigade Enterprises, Oberoi Realty and Oil & Natural Gas Corp.

Jindal Saw has risen the most, by 371.5% over the past year. At the same time, the company surprised Trendlyne Forecaster’s revenue and net profit estimates in Q2FY24 by 30.7% and 42.2% respectively. Its revenue improved by 35.2% YoY to Rs 5,466.1 crore during the quarter, owing to increased sales in the iron & steel segment. 

The screener also consists of three stocks from the realty sector: Prestige Estates Projects, Brigade Enterprises and Oberoi Realty. Prestige Estates rose the most among realty stocks, by 145.1% over the past year, followed by Brigade Enterprises (71.6%) and Oberoi Realty (60.5%). Brigade Enterprises beat Forecaster estimates for revenue and net profit by 40.8% and 49.7% respectively in Q2FY24. Its revenue grew by 54.3% YoY to Rs 1,407.9 crore in Q2FY24 on the back of improvement in the real estate and hospitality sectors.

You can find more popular screeners here.