Indian elections and what the result means for investors

Alquity’s head of global emerging market equities, Mike Sell, answers question on the Indian elections and what the result means for investors.

What was the Delhi election result?

Mike: On 5 February, elections were held across the 70 constituencies that make up the National Capital Territory of Delhi, to elect representatives to its Legislative Assembly.

Members are elected for five-year terms in each of India’s self-governing 28 states and 8 union territories as part of India’s federal system of government.

The result was announced on 8 February and saw the right wing Bharatiya Janata Party (BJP), which is led nationally by Prime Minister Narendra Modi, take 48 seats. The incumbent left leaning Aam Aadmi Party (AAP) secured the remaining 22.

India’s main opposition party, the centrist Indian National Congress (or ‘Congress’ as it is best known) failed to win any seats.

What does this mean for India’s economy and outlook for growth?

Mike: Modi secured a historic third consecutive term as prime minister in 2024, but a predicted landslide failed to emerge.

One of the BJP’s campaign slogans for the 2024 national election was ‘This time surpassing 400’, a prediction the party would claim more than 400 of the 543 seats in the Lok Sabha, the lower house of parliament. The party only managed to win 240 seats, around 44%, making pursuing their policy objectives more challenging.

The Delhi election marks the first time the BJP has returned to power in India’s capital for 27 years. In isolation, the victory is a boost to Modi and the BJP, but it follows similar results in recent elections in the states of Haryana and Maharashtra.

After a chastening general election result, these three successes for Modi’s party reinforce his popularity among voters and strengthen his position.

This, therefore, provides continuity for investors following the success of Modi’s infrastructure investment programme and structural reforms over recent years. We expect government policies to continue to focus on achieving India’s growth potential.

What does this mean for the Alquity India Fund?

Mike: As our fund prioritises domestic structural growth, the resurgence of the BJP gives greater clarity on the government’s roadmap and reinforces Modi’s position within the governing coalition.

It is important to note that our fund is not a random collection of stocks, but rather we focus on overarching generational structural shifts such as: Demographics, Urbanisation, Informal to Formal and Made in India.

Hence, many themes in the fund overlap with India's national priorities, including:
• Building India - national highway development programme, smart cities mission and housing for all,
• Travel - regional airport development,
• Made in India - production linked incentives, and
• Financing India - digital India initiative and financial inclusion.

However, we focus exclusively on quality-growth, private-sector companies as we believe managements here are aligned with minority shareholders. While we recognise that state linked companies can also benefit from the government’s pro-growth stance and may deliver strong share price returns in the short term, we assess the Governance risk to be too high and thus do not believe that these firms will deliver sustainable returns to investors over the medium term.

Furthermore, as almost all the holdings in the fund are domestically focused, they are relatively immune to geopolitical events and trade tensions, such as US tariffs.

The Alquity India Fund does not chase sentiment driven rallies. We favour companies with long-term growth prospects, attractive valuations, robust governance and sustainable practices. Many of our holdings are relatively under-owned by foreign investors, and not part of the major Indian indices or ETFs.

Mike Sell spent two weeks in India in December 2024, meeting with more than 35 companies.