Global banking giant UBS remains "underweight" on emerging markets like India as the Lok Sabha Elections 2024 results suggest a "weaker mandate" for Prime Minister Narendra Modi-led NDA. Multinational investment bank and financial services company's Global Research and Evidence Lab, in today's India Market Strategy report, says most scenarios from here could be taken "negatively" by market compared to the expectations last week.

As of the time of writing, the BJP is in the lead position but seems unlikely to cross the 272-seat mark on its own against 303 seats in 2019. The BJP-led NDA is ahead on 298 seats currently, while the Congress-led I.N.D.I.A. alliance is leading on 228 seats.

The performance of the opposition alliance is better than predicted by exit polls, while the BJP's performance is contrary to what exit polls suggested. The USB report says if the BJP does not have a simple majority of its own, the "bargaining powers" shift materially within the alliance.

UBS lays out 3 key scenarios from here:

Scenario 1:

PM Modi comes back as the Prime Minister, but carrying along the alliance partners (which would mean giving them ministry portfolios, etc). The government may not function as smoothly as in the last 10 years when the PM office had strong control over all government machinery. "Given the alliances already in place, this seems the most likely scenario," says UBS analysts.

Scenario 2:

NDA forms government but with a new prime minister other than Modi.

Scenario 3:

Some of the key alliance partners of the BJP switch sides and the opposition I.N.D.I.A. alliance comes to power. This could lead to meaningful changes in the trajectory of a government policy.

UBS says going from here, scenario 1 above would be the most positive for the markets (albeit a setback from the optimistic policy visibility till last night -- and hence an overall negative outcome). "While the election mandate is for five years, India has state elections quite frequently -- the most important ones being Maharashtra (2024) and UP (2029). So national policy thought process could change sooner than later," says UBS.

Lok Sabha Elections Results 2024

Lok Sabha Results 2024: As BJP stares at 'weaker mandate', 3 scenarios that can impact India's investment outlook