With Indian Prime Minister Narendra Modi and his ruling Bharatiya Janata Party (BJP) widely expected to return for a third term in power, analysts say that this would be a positive for relations with the UAE, which have strengthened under the current government.
But with politics and elections, there is always unpredictability and uncertainty, and other possible scenarios could throw up challenges for India's international investment relations in the near term, they warn.
“If the incumbent government wins the majority then we can expect these relations to only grow stronger and similar initiatives to drive mutually beneficial policies,” says Kush Gupta, director at SKG Investments & Advisory.
“In an adverse scenario of political instability, I think relations will continue to remain strong. But due to change in the government, we could see a pause in what is, otherwise, on a fast-track mode.”
India and the UAE have close ties that have gone from strength to strength in recent years, with the signing of a comprehensive economic partnership agreement in 2022, and a local currency settlement system last year to promote the use of Indian rupee and dirham for cross-border transactions.
Mr Modi visited the UAE for the third time in eight months in February, resulting in a boost in ties in areas including digital infrastructure and ports.
India is the second-largest trading partner of the UAE, while the Emirates is the third-largest trading partner of the Asian country. Thus, the outcome of India's polls could have implications for the countries' relations, as well as India's wider international investment environment.
“The coming Indian elections hold significant implications for India's international investment policies and relations with the UAE and the Gulf region,” says Saket Gaurav, chairman and managing director of Indian consumer electronics brand Elista.
“Should the BJP-led NDA [National Democratic Alliance] coalition secure victory, it would likely signal stability and continuity in India's approach to international investments, particularly in key sectors like energy, real estate and technology.
“Conversely, if there is an unexpected outcome and the [opposition] INDIA [Indian National Developmental Inclusive Alliance] emerges victorious, it could herald a period of change and adjustment in India-UAE relations.”
The results of India's weeks-long election are expected to be announced on Tuesday, when votes will be counted.
In the last election in 2019, the BJP and its allies in the NDA won 352 out of 543 seats in India's lower house of parliament, with the BJP alone winning 303 seats. A party needs to clinch 272 seats to wield a majority.
The BJP had been saying that it and its allies would win 400 seats in this election but lower voter turnout and apathy have led to scepticism among political experts that the ruling party will be able to secure hit this number – although the consensus is that it will still emerge victorious.
“If the ruling party comes back to power, it will indicate policy continuity,” says Mohit Khanna, co-fund manager at Purnartha One Strategy.
“This will mean minimal or no change for the businesses investing in or out of India as far as government’s investment policies or relations are concerned.”
Mr Khanna believes that even if the BJP wins fewer seats, it is unlikely to have a significant impact on its policies with the region.
“I don’t expect any major policy changes if the incumbent government comes back to the power or even if they lose majority, says Mr Khanna.
"India’s trade policies with the UAE or the Gulf region are far stronger and more mature.”
But Amit Goel, co-founder and chief global strategist of Pace 360, says that the BJP will have to retain its strong single-party majority in the alliance for investors to “remain confident in policy continuity”.
“Foreign policy includes expanding India’s global diplomatic reach and commitment to the India Middle East Economic Corridor,” says Mr Goel.
“India aims to become the leading manufacturer in Asia as companies diversify their supply chains away from China.”
However, if the BJP-NDA secures a victory but the ruling part falls short of an absolute majority, it could “create an uncertain environment regarding government policies and foreign relations”, he says.
Mr Gupta says that “without a strong majority, the BJP will find it difficult to pass reforms and policies with the same vigour as they are used to”.
“Bigger moves will be difficult to execute and, most importantly, investor confidence will take a hit. In cases like this, we could see a flight of funds from equities into defensive assets such as gold, bonds and real estate.”
This would probably lead to a correction in India's stock markets and a depreciation in the Indian rupee, he says, whereas an outcome of a strong majority for the BJP would push the markets higher and lend support to the Indian currency.
He warns, however, that stock markets have already largely priced in this outcome.
Globally, analysts such as Mr Gupta say that India has been increasing its relevance in the international investment landscape, reflected in developments such as when the Morgan Stanley Capital International (MSCI) index for emerging markets increased India's weightage in February.
“If the BJP-NDA comes to power with sizeable majority then we could see this trend going forward,” says Mr Gupta.
“A reformist government that has the majority to pass bills is a key factor for India’s recent rise as a global investment destination. With them in power, policies that ensure ease of business in the country would take priority and we can expect a major influx of funds across various sectors.”
However, if an opposition coalition government, led by the Indian National Congress, were to come to power, this could catch everyone off guard, including investors.
“In a surprising event of NDA not coming into power, we could see a shock-and-move-on scenario where foreign investors will pause, wait and watch as the future events will unfold,” says Mr Gupta.
This would have a negative impact on India's markets.
But he adds that in the medium to longer term, India should – in theory at least – have similar economic potential.
“India’s key factors that are powering its growth, including favourable demographics and consumption – will still remain unchanged.”
But a change in government would have a far-reaching impact, according to Mr Goel.
“If the opposition alliance unexpectedly wins a majority, it would likely bring significant changes in policy and governance and could cause significant market uncertainty due to a potential reversal of NDA-implemented policies and reforms,” says Mr Goel.
“This would likely trigger a sharp, adverse market reaction.”
For non-resident Indians (NRIs) in the Gulf region, analysts believe that the continuity that would come with a return of the current administration would be the best possible outcome.
“If the BJP secures a victory, it could significantly impact NRI investments,” says Mr Goel.
“The market sentiment and confidence are likely to receive a boost, leading to increased foreign investments, which NRIs may find favourable due to the stability associated with a strong government and its potential for long-term economic reforms.”
