Indian Prime Minister Narendra Modi‘s Bharatiya Janata Party (BJP) has received a boost in a major state election, though political uncertainty over the outcome roiled financial markets.
The BJP has won the largest number of seats in an election in the southern Indian state of Karnataka, more than doubling the amount it held previously. The vote, which was held on May 12, is viewed as a key indicator ahead of 2019’s general election.
The opposition Indian National Congress, led by Rahul Gandhi of the Gandhi political dynasty, lost its majority by a clear margin.
But, the BJP has only won 105 seats of the 224 total. This means that it lacks the 113 seat majority needed to govern. Congress has claimed 76 seats, and so backed a smaller competitor in the hope of securing governance through a coalition for another term.
The uncertainty has fueled major swings in Indian markets on Tuesday.
India’s rupee plummeted to a near 16-month low against the U.S. dollar on Tuesday morning to hit 68.07 per dollar, according to Reuters. But, Indian central bank intervention is thought to have brought about a sharp recovery in the currency. In the longer term, the rupee has also been hit by rising oil prices, of which India is a major importer.
India’s Nifty 50 stock exchange gained 0.9 percent on a suspected BJP win earlier in the day, but pulled back on the instability to close flat.
The BJP win reflects solid support for Modi, whose leadership has brought controversial economic reforms to the world’s fastest growing major economy. Since taking power in 2014, Modi has axed the country’s two largest banknotes in a sudden decision to clamp down on currency fraud.
Last year his government introduced the Goods and Services Tax, which unifies the country’s consumer taxation system across its states.
Congress, the party of India’s first prime minister after independence from the U.K., has struggled against Modi’s popularity and now only governs three of India’s 29 states.
But, market instability could be short lived.
“Investor attention will very quickly turn to the campaigns in the three big northern states scheduled for polls later this year,” said Shumita Deveshwar, senior director for India research at TS Lombard, in a note Monday. “Those polls will be more indicative of the BJP’s popularity as northern India is the party’s traditional stronghold,” she explained.
Karnataka’s capital is technology hub Bangalore. The state is home to 64 million of India’s 1.3 billion population.