India and Mexico elections: Expectation, results and implications

Originally Posted, 10 June 2024 – India and Mexico elections: Expectation, results and implications

Martin Currie reviews the election results from India and Mexico and highlights the implications for the economy and investors.

India

The 2024 Indian election is arguably the largest democratic exercise in the world. The country’s electoral commission estimates that in 2024 there are 968 million registered voters.¹ The elections for the 18th Lok Sabha, the lower house, took place from 19 April to 1 June in seven phases covering 543 constituencies.

The Bharatiya Janata Party (BJP)—led by Prime Minister Narendra Modi—was expected to maintain a majority on its own. An unexpectedly strong result for the opposition Indian National Congress (Congress Party) shook up the elections. Modi is now dependent on his coalition partners in the National Democratic Alliance (NDA) and potentially faces making concessions to them.

Expectation: The BJP maintains a majority

The exit polling implied that Modi’s BJP alliance with the NDA would win between 360-400 seats in the Lok Sabha. Thus, it seemed like the BJP would have more than the 272 seats it needed to have a majority based on the 543 total seats. If the BJP maintained a clear majority, it would not need to make any material concessions to its coalition partners going forward.

Result: Modi dependent on collation partners

The BJP failed to win the required 272 seats to form a majority government on its own. Thus, it had to depend on its NDA coalition partners to maintain majority status. Modi’s coalition partners have backed him as prime minister for a third term.

The market reacted negatively to the result of a reduced Modi majority with a US$400 billion total selloff, with overseas investors selling a record US$1.4 billion worth of shares.²

Exhibit 1: 2024 Lok Sabha Political Groups

Source: Bloomberg, as of 5 June 2024.

Implications: Growth to continue regardless

Modi’s historic reforms are benefitting growth today. In 2018, India accounted for 8% of the MSCI Emerging Market Index, with that figure rising to 18%³ at end of 2023. We expect that growth should continue in India, and the country’s gross domestic product (GDP) is forecasted to grow at an average of 6.5% annually over the next five years.⁴ High-quality Indian businesses have the potential to accelerate their growth and compound returns. The two-year forecast earnings per share (EPS) for the MSCI India Index is 16%.⁵ In our opinion, politics will not disrupt the country’s strong growth outlook.

Mexico

Mexico went to the polls on 2 June to elect its next president. For the first time in history, the election was between two female candidates.

Claudia Scheinbaum of the ruling Moreno Party (National Regeneration Movement) is close to incumbent President Andrés Manuel López Obrador (known as AMLO). Scheinbaum’s platform was focused on continuing AMLO’s policies of inclusive economic growth and sustainable development.

Her opponent, Xóchitl Gálvez of the National Action Party (PAN), is known for her advocacy on indigenous rights and technological innovation. Her platform had a focus on governance reform.

Contrary to expectations, Scheinbaum and the Moreno party won by a significant margin. This gives them the ability to pass significant reforms. After losses on both the domestic stock market and a selloff of the Mexican peso,⁶ we believe the market will now focus on gaining confidence around potential reforms and the drivers of fiscal growth.

Expectation: Sheinbaum to win by a ‘simple majority’

A week ahead of the election, polls suggested that Sheinbaum and the Morena party would win the election by a mid-teens margin over second-runner, Galvez, in terms of the popular vote.

Furthermore, the market expected that the Morena party would win only a simple majority in the congress, around 52%-53%. In Mexico, a two-thirds majority is needed, known as a ‘qualified majority,’ to pass significant constitutional reforms.

Result: Scheinbaum wins a ‘qualified majority’

The election authority of Mexico’s preliminary results showed that Sheinbaum and the Morena party delivered a 30% margin in the presidential election. This is equivalent to nearly 38 million people.

More importantly, the Morena party won a qualified majority in the house and is set to potentially deliver a qualified majority in the Senate. Of the nine state governor elections, the Morena party won seven, including control of the all-important Mexico City governorship.

Implications: Market needs confidence on potential reforms

Many constitutional reforms have been discussed, ranging from changes to the autonomous agencies in Mexico to the appointment of the Supreme Court. Most believe that Sheinbaum will continue pro-economy, poverty reduction policies, such as continued increases in the minimum wage. We believe economic policy will be a key focal point going forward.

Both the equity market and the Mexican peso fell sharply over fears of the Sheinbaum administration’s ability to implement potentially market-unfriendly policies.⁷ In our opinion, there could be further volatility. We believe the market will now look for confidence around measures involving Pemex (the stated-owned energy firm) reform, the finance ministry and fiscal revenue engines.

Endnotes

1. Sources: Statista Research Department and Indian Electoral Commission, 22 April 2024.
2. Source: Bloomberg, as of 6 June 2024.
3. Source: MSCI as of 31 December 2023. Weighting in the MSCI India Index on 31 December 2018 versus 31 December 2023. The MSCI Emerging Markets Index captures large- and mid-cap representation across 24 emerging market (EM) countries.
4. Sources: Statista and IMF World Economic Outlook. Data calculated to 31 December 2023, released in April 2024, amended on 21 May 2024. There is no assurance that any estimate, forecast or projection will be realized.
5. Sources: FactSet and MSCI, as of 31 December 2023. The MSCI India Index is designed to measure the performance of the large- and mid-cap segments of the Indian market. There is no assurance that any estimate, forecast or projection will be realized.
6. Source: Bloomberg, as of 6 June 2024.
7. Source: Bloomberg, as of 6 June 2024.

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