Brokerage Houses Project Continuity for Modi-Led BJP But With Reduced Majority

As India prepares for its next general elections in mid-2024, the biggest question is whether Prime Minister Narendra Modi will secure a third consecutive term at the helm, or whether the new INDIA alliance will ride a way of anti-incumbency sentiments to power.

According to recent research reports by prominent brokerage houses Jefferies and IIFL Securities, continuity of the Modi-led government is the base case, albeit with a reduced majority.

Jefferies projects the BJP-led NDA coalition to win around 300 seats, down from the 353 seats it won in 2019 but still a comfortable majority above the 272 seats needed to form government. IIFL Securities analysis also suggests 251-300 seats for the BJP, with political continuity likely.

The key factors shaping the election outcome, as per the brokerages, are:

Modi’s Continued Popularity

PM Modi remains highly popular with approval ratings consistently above 60%, as per surveys. His image as a strong, decisive leader and clean track record are seen as key strengths. Modi is also credited with implementing several high-impact social schemes like Ujjwala, Swachh Bharat, Jan Dhan Yojana, PM Awas Yojana etc. He is perceived to have elevated India’s global stature through frequent high-profile foreign visits. The completion of the Ram Mandir construction in Ayodhya before the 2024 polls will further cement Modi’s popularity among core BJP supporters.

Lack Of Credible National Alternative

The opposition remains fragmented and lacks a strong consensus candidate for Prime Minister to take on Modi. Efforts are ongoing to unite the opposition parties under the ‘INDIA’ alliance, but public surveys do not indicate high popularity for any opposition leader. The new INDIA coalition is still seen as work-in-progress.

Economy on Upswing, Capex Cycle Turning Positive

The Indian economy seems to be entering an upcycle driven by an uptick in the corporate capex cycle after years of slowdown. Housing upcycle is already underway with rising demand and declining inventory. Government’s production-linked incentive schemes, China+1 manufacturing boost and large infrastructure projects are driving growth in manufacturing and construction sectors. Banks are well capitalized while corporate India has trimmed leverage and is ready for the next growth phase. The positive economic momentum favors continuity.

BJP’s Dominance in Hindi Heartland

The Hindi speaking states of North and Central India remain BJP bastions, accounting for over 80% of its Lok Sabha seats. Any losses here will be key. But BJP remains popular in the state of UP under CM Yogi Adityanath. It also continues to dominate in Gujarat. Some anti-incumbency is visible in states like Bihar, Rajasthan, Madhya Pradesh where it may lose 5-10 seats each but no major reversal of BJP’s dominance in the heartland states seems likely.

Alliance Math

Despite loss of some key allies like Shiv Sena and JDU since 2019, the BJP has also added new partners like the NCP faction in Maharashtra and breakaway Congress leaders Amarinder Singh and Jyotiraditya Scindia. In Bihar and Maharashtra, the BJP faces greater opposition unity but is unlikely to see major losses. BJP’s MVA break-up maneuver brings it back in power in Maharashtra. Its base in Gujarat, MP, Rajasthan remains largely unchallenged.

State Election Setbacks Unlikely to Impact National Prospects

Recent state election reversals for BJP in states like West Bengal, Jharkhand and Karnataka are unlikely to translate into big losses in Lok Sabha polls. BJP has lost some state elections before but still won big in parliamentary polls months later. Different issues dominate state and national elections. BJP’s vote share has held up reasonably well.

United Opposition To Have Limited Impact

The united opposition INDIA alliance is still a work in progress but will face challenges like seat sharing and picking PM candidate. Its impact may be limited to a few states like Bihar, Bengal and Maharashtra. In UP, the BSP staying out of INDIA alliance is positive for BJP. Perfect vote transfer between allies rarely happens, limiting impact. INDIA alliance with just 3-4% incremental vote share over 2019, may only cost BJP 20-30 incremental seats.

BJP Still Has 1/3rd Vote Share

Despite some anti-incumbency, the BJP is still projected to get 34-35% vote share compared to 37% in 2019 as per opinion polls. It had won 182 seats in 2009 with just 19% votes. Its broader base hence stays intact. Small swings can however impact outcomes significantly when support is dispersed.

Key Risks: Sharp Communal Polarization, 2004 Repeat

Any events causing extreme Hindu-Muslim communal polarization could benefit BJP disproportionately, increasing the risks of secular parties. Repeating a 2004 like upset also can’t be ruled out when the incumbent PM loses despite leading in most opinion polls. However, current projections do not indicate a 2004 type shock loss for BJP.

Crucial States and Regions for Election Results

Uttar Pradesh: BJP won 62/80 seats here in 2019 and may get 63-70 this time. Together with allies, UP can contribute 70+ seats for NDA.

Hindi Heartland: BJP may lose 10-20 seats in states like Bihar, Rajasthan, Madhya Pradesh but sweep in Gujarat will continue. Around 175-200 seats likely from this region vs. 211 in 2019.

West Bengal: BJP to lose some ground with Trinamool-Left-Congress united fight. But still 10-12 seats likely vs 18 in 2019.

South India: BJP peaked in Karnataka in 2019, tally to fall from 25 to 15-20 seats. But party lacks presence across much of South.

Maharashtra: Despite Shiv Sena alliance loss, BJP likely to retain 20-22 seats here.

East India: Gains in West Bengal, North East and Odisha peaked in 2019. Alliance and ethnic tensions may cost BJP 5-10 seats.

The two brokerage analysts differ somewhat on the extent of BJP’s majority with Jefferies projecting a more comfortable victory. But both highlight risks related to complacency, opposition unity and communal polarization. Continued economic momentum and avoiding social faultlines will be key for BJP to retain power. The next few months will see intensified campaigning and coalition building efforts on both sides. But the advantage still lies with the incumbent PM Modi to lead India again after the 2024 ballot counting day.