The State of Markets at the Second Coming of Modi 3.0

Aap Chronology Samajhiye

1.       (June 4, 2024 – Nov 14, 2025) The June 4, 2024 Lok Sabha election result created a sense of doubt on government continuity and policy continuity in the years to come. While the immediate fear of a change in regime was allayed promptly as the BJP allies closed ranks in the week following June 4, the continuity of support by critical allies remained a question mark. Several allies (JDU in Bihar, SS and NCP in Maharashtra) had an opportunistic alliance with BJP – the BJP supported and participated in allies’ (both of whom held CM positions) state governments in their respective states, which served as a glue in the support for BJP at centre.

While the LS’24 elections did not lead to a change in the government, but they did lead to a change in perception of its stability. What would it take to convince the market that the government was stable and strong enough to pursue its agenda? It would take a comprehensive victory in two state elections – Maharashtra and Bihar. Maharashtra allies have eight seats in the LS, Bihar allies have 17; NDA has 290-odd, majority mark is 272. BJP needed to not just win these elections, but win them so comprehensively that these allies had no choice but to remain with it - it was a tough ask, and it looked impossible in the light of results that LS’24 had thrown in. Before these elections concluded with massive victories, there was reason to assume there is a high probability of a lame duck government/ policy ambiguity.

2.      (November 23, 2024): BJP-led NDA wins Maharashtra elections as comprehensively as anyone could have wished for them to. NDA launches a few populist schemes on the lines of ladli behna scheme, just ahead of elections. The victory is comprehensive enough that BJP is able to get its own CM in the chair, replacing allies’ CM. Objective 1 achieved; countdown averted. The key to stability is still the Bihar election, 12 months away – but foundation is set for at least a good bargaining position with allies in Bihar for seats, and it is established that the public mood is decisively with the BJP. The perceived anti-incumbency is erased.

3.      (September, 2024 – Oct, 2025) Further to BJP’s loss of a majority position and dependence on allies in the Lok Sabha, the expectation and election of US President Trump in the US, the altered information set and relative attractiveness of US markets led to capital outflows from emerging markets. Trump’s victory and the promises/ delivery that followed, regarding government support to AI, crypto, and the domestic industry led to about 30%/ 100% rally in the Nasdaq/ Bitcoin next 13-14 months.

4.      (April, 2025- till date; intensifying in August, 2025) Indian markets became especially vulnerable after US doubles down on tariff punishment on India, linking the said action to India’s purchase of Russian oil. In CY25, Indian markets have underperformed most developed markets by 5-20 percentage points.

Others may speculate differently, but it’s possible and likely that (among other things, including President Trump’s chagrin over New Delhi’s refusal to give any credit to the US for ceasefire in Operation Sindoor) the US President fancied arm twisting a (perceptibly) weak Indian government into a one-sided trade deal, while the Indian PM believed that the US perception was misplaced and it was only a matter of time before it could be so proven. It was easy to believe that Modi is probably just one election (Bihar) away from kneeling down, before allies, and thence before US – and opinion polls barely provided a lead to the NDA in Bihar. Thus, a trade deal was best deferred until the strength of the government became clear.  

5.      (Oct’ 2024 – ongoing) Add to this the fact that the domestic naysayers of the Indian markets got more wind in their sails to discourage equity investing among Indian masses (which met with modest success, if any) and discourage concentration among India’s promoters (which did happen). Over the past 12-15 months, the Indian markets have suffered from vicious withdrawals by FPIs and frantic actions by Indian promoters towards diversification ($ 15Bn/ ~$25 Bn of FPI selling in CY25/CY25, and $60Bn/~$50Bn selling by promoters/ strategic investors). The Indian equity markets have kept afloat barely on the oxygen provided by the retail investors/ DIIs.

6.      (November 14, 2025-Nov 21, 2025): NDA wins the Bihar assembly election, riding on two important factors – implementation of populist schemes, and the implementation of SIR (Special Intensive Revision of electoral rolls). Not only has the NDA won, the RJD/ BJP “switch” available to ally JDU until last year now is rendered inoperable; the victory is comprehensive enough that such a switch would not be viable. In short, this (along with Maharashtra elections in Nov, 2024) ensures that the centre can’t be destabilised for practical forecasting, illuminati-level thinking excluded. As was the case after the Maharashtra elections, the BJP’s bargaining position with the allies in Bihar has improved sufficiently; for the first time since Nitish Kumar became CM, the Home Ministry is held by BJP.

The (rightly) perceived crisis has come to an end with the Bihar assembly election verdict. In the judgment of this author, the probability of the centre becoming unstable has declined from roughly 25-30% in June’24 to maybe <5% now. The government at the centre has regained its confidence.

Further, the victories have a structure – a formula - to them, post Maharashtra (and more so post Bihar). I believe the centre will only strengthen from this (already strong) position, because not only has the glue holding the coalitin strengthened post these state elections, but also fence-sitting MPs of non-NDA parties have reason to reassess their positions. There is little to gain by standing against the BJP for several of these entities, and it is possible that the BJP may gain support of more parties/ individuals in the Lok Sabha, in the near-term, as part-time or full-time allies.

7.      (Oct - November, 2025 – US/ global market) Triggered perhaps by disclosure of a big short position taken by Michael Burry, questions begin to be asked about the valuations of AI related stocks. Nvidia reports “stellar earnings” but the street rejects them the very next day. Bitcoin plunges ~35% from its recent high even as US government seems to be doing everything expected to help the crypto industry.  The tide is likely turning.

8.     (November, 2025) India offers several “wins” to the USA, including a deal on import of LNG, and (going by some media reports) reduced buying of Russian crude oil and a weapons deal, which should be sufficient for the US to market to its audience without compromising India’s interests in a potential deal. It is notable that these actions have been taken after the Bihar election results are in, therefore limiting their potential misuse by the Opposition (as also by Trump!).

With significantly diminished political uncertainty in India and the concurrent realisation of an overheating of (at least pockets in) the US markets, we believe that the direction/ magnitude of flows from foreign investors is likely to change, bringing with it a significant rally in the Indian markets – the extent of the rally depends on the extent of display of will/ initiative by the Indian government in the next few months.  

Do not expect an overnight rally – because the extent and timing of inflows depend also on the extent of damage that US markets suffer in the immediate term. Further, the changes that have come about in India are far reaching, but will likely take their time to hit home. It is easy to see what would happen if the government falls, it is difficult to see that there is mispricing when the factors that could cause the fall are dismantled piece by piece -and the last piece goes down. This is likely to take a few weeks/months, and probably is going to be first realised by the US government, before it is realised by their funds. While I am no fan of source-based reports that have begun to appear lately about a trade deal announcement in the near-term, I believe that the likelihood of a trade deal sooner has certainly risen.

For the individual investor, the next few months present a good opportunity to deploy more capital into the Indian market, as valuations are not going to run up rapidly/ immediately (until the trade deal is done, I suspect), while circumstances have changed meaningfully.

Given the triggers as discussed above, where can the retail investor find the most bang for his incremental rupees? More on this later, but the first thoughts that come to mind are: a/ since it is government continuity and policy continuity we are speaking of, the “Modi stocks” of 2024 (defense, railways, capital goods) make a strong case, and b/ since we think the altered/ clearer political picture makes a US deal likely on better terms than what might have been suggested so far, there is a case to invest in stocks that have been battered on account of exposure to US markets, c/ since we identify foreign flows as the key driver of markets as this realization hits, there is a case to be tactically more bullish on large caps versus small, basis this theme. But that’s material for the next post.