Mumbai, India – Investors in India faced a significant blow as the All India Market Capitalization index on the Bombay Stock Exchange plummeted by over 31.06 trillion rupees, approximately $371 billion, on June 4. In a single day, the Sensex index wiped out all gains made this year, transitioning from a 5.85% year-to-date increase to a 0.22% loss. The Nifty 50 also experienced a drastic drop, with its 7% year-to-date gain as of Monday dwindling to a mere 0.7% increase since the beginning of the year.

Despite the economic turmoil, Prime Minister Modi appears poised to secure a rare third term in power as the BJP clinched 240 seats in the lower house of parliament. However, the party fell short of retaining a single-party majority in a tighter-than-expected race. The BJP-led National Democratic Alliance (NDA) coalition managed to secure 294 seats, surpassing the 272 mark needed to form a government.

In the previous general election in 2019, the BJP and NDA won big with 303 and 353 seats, respectively. While Modi expressed confidence in March of securing over 400 seats, the final outcome fell short of his expectations. The opposition Indian National Developmental Inclusive Alliance (INDIA) coalition, led by the Indian National Congress, performed better than predicted, garnering 233 seats.

According to a report by Goldman Sachs released Wednesday, the reduced majority is unlikely to compromise macro stability in the country. However, the weaker mandate may pose challenges in implementing structural policy changes, such as land reforms to boost manufacturing growth and agricultural reforms to enhance productivity. This marks the first time in a decade that the BJP will run a government without a majority in the Lok Sabha, the lower house of parliament, presenting the party with the challenge of managing coalition partners who may negotiate for key ministerial positions.

Goldman analysts believe the government will adhere to their fiscal consolidation plan of 5.1% of GDP this fiscal year, while anticipating some reallocation of spending towards welfare. The coming months will undoubtedly test Modi’s ability to navigate a government without a majority while managing coalition dynamics and pursuing key policy reforms.