Indian stocks have been on a roller-coaster ride this week buffeted by uncertainty on the outcome of the election as prime minister Narendra Modi was on course to bag his third consecutive term in office.

The BSE Sensex index comprising India’s 30 largest companies by market capitalisation surged 3.4% to record highs on 3 June as exit polls pointed to a comfortable victory for Modi’s Bharatiya Janata-led coalition, before slumping over 5% on 4 June as the extent of his win looks to be narrower than the polls predicted.

This might make it harder for Modi to push through the business-friendly policies the market expects.

Accordingly, the indices suffered what represented their worst drop since the onset of the pandemic, with state-run companies and banks taking the brunt of the pain, falling around 15%, while infrastructure stocks dropped by a tenth.

The world’s largest election, canvassing almost a billion voters was fought over six gruelling weeks. A party or coalition needs to win 272 seats in the 543 Lok Sabha assembly to from a government.

Looking at the longer-term picture, strategists at Bank of America believe India will continue to benefit from several tailwinds.

Shifting global supply chains could help the country to scale-up manufacturing in sectors like electronics, autos, pharma and textiles. A capital expenditure programme aimed at building up the country’s infrastructure assets is expected to have positive knock-on effects for economic growth.

Bank of America believes India is a major beneficiary of the global transition to AI (artificial intelligence) given its historical strength in coding.

The country’s huge population and burgeoning affluent middle class should drive consumption-led growth.

‘As India has circa 500 million Gen Z and Millennials who are a mobile first generation, the affinity towards US & global brands is much higher,’ writes Bank of America.

The IMF’s (International Monetary Fund) latest projections for GDP (gross domestic product) growth sees India growing twice as fast as the global average at 6.5% a year from 2024 to 2029 putting it in the top 10 fastest growing countries.

A rising India is considered a more friendly trading partner by the West, argues Bank of America. In accordance with its growing influence the country is redefining its foreign policy to navigate a complex geopolitical landscape.

This includes procuring oil from Russia, collaborating with the US where the two countries reaffirmed their close and enduring relationship at the G20 meeting last September.

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