The benchmark Nifty50 has rallied over 3% in the past three trading sessions. This rise in Nifty50 has come after a fall of ~11% in the preceding eight weeks. Most market participants have attributed this rally to the assembly election results of Maharashtra. The incumbent alliance (Mahayuti) has registered a sweeping victory, with BJP winning ~90% of the seats it contested.
The popular narrative is that the overwhelming victory in the Maharashtra election would strengthen the Prime Minister led union government and reinvigorate the development agenda, especially the infrastructure capex. I find this narrative counterintuitive and mostly speculative. There is absolutely no substantive evidence to support these assumptions. To the contrary, there are some indications of slowdown in infra capex in FY26, as fiscal consolidation gets higher priority. In this context, I take note of the following:
· Mahayuti alliance was running a stable majority government in the state of Maharashtra for the past three years. Many key infrastructure projects like coastal road, metro rail, Sewri-Panvel link bridge (Atal Setu) etc. have been completed in these three years. Nifty50 made an all time high of 26216 in September 2024, when the opinion polls were indicating a loss or thin majority for the incumbent government. These election results change absolutely nothing (except perhaps the Chief Minister).
· In the 1HFY25, the government capex has contracted 15.4% yoy, against a target of 17% increase. There are indications that the overall FY25 capex may fall short of the FY25 budget target of Rs11 trilion. It is estimated that the government may not provide a material hike in capex budget for FY26, as in a volatile global environment, it may prioritize fiscal consolidation over capex. (see here)
· Reportedly, a lot of government contractors are facing delays in payments from the state and central government. This is adversely affecting their working capital cycle operating cash flows. Elections are cited as one of the primary reasons for these delays, however anecdotal evidence indicates that there may be a trend in delayed payments. Favoring infrastructure builders facing delayed payments (affecting execution) and slowing order flows might not be a great investment strategy, in my view. (also see here)
· The primary reason for the ~11% correction in Nifty50 was the declining earnings growth trajectory. Maharashtra election result, or any other datapoint that emerged in the past one week, do not change anything about the earnings prospects of the Indian companies. There are indications that RBI may continue in pause mode; pollution related restriction may impact demand in NCR region; consumption recovery may be back-ended in FY26; and new tax code may not offer any material relief to the individual taxpayers. It would therefore be prudent to wait for another 3-4 months before jumping into the markets.
Trivia: International gold prices have corrected ~3% in the past one month. Some recent reports (see here) suggest that “Israel nearing a ceasefire with Hezbollah, coupled with Trump's nomination of Scott Bessent as the U.S. Treasury Secretary soured the precious metal's safe-haven appeal. If you are also one of the investors who allocated 10% to gold in view of the rising geopolitical threat or Trump related uncertainties, you need to seriously review your investment strategy. Protecting 10% portfolio from war or eccentricities, while keeping 90% fully exposed to it, may not be a great strategy, after all.
