According to Nomura, if anti-incumbency proves to be a core theme in the 2014 general election, it will clearly be to Congress' disadvantage overall – although it does not follow, of course, that BJP would necessarily be the main beneficiary

The state assembly elections are viewed by many as a preview of the general elections, which are due by May 2014. The incumbent Congress has lost both Delhi and Rajasthan, while the Bharatiya Janata Party (BJP) has retained a majority despite being an incumbent government in Madhya Pradesh and Chhattisgarh. This indicates a rising wave in favour of the BJP as well as an anti-Congress vote in these states. However, according to Nomura, while BJP has clearly done very well in the 2013 state assembly elections, this may or may not have much of an implication on the general elections.

Sounding a cautious note that state election outcomes are not always a reliable indicator of general election prospects, Nomura said, during 1999 Congress performed exceedingly well in the state elections, but the BJP came to power at the centre a few months later. In 2003, the BJP had performed well in the state elections, but it lost the national elections held a few months later.

"This could be because voters differentiate between state and central elections and local factors play a more important role in the former. It is also important to note that the states of Madhya Pradesh, Chhattisgarh and Rajasthan have been traditional strong holds of the BJP, while it does not have much of a presence in the eastern and southern parts of the country," the report said.

It said it belive wins in Delhi and Rajasthan will be interpreted as a boost for BJP's prospects by financial markets and are likely to give the party additional momentum as general election campaigning starts to ramp up.

"We have previously noted that we consider Delhi, traditionally a Congress stronghold, the most important of the recent state elections in terms of possible indications for the general election. Therefore, BJP's victory there should not be dismissed, in our view, even though it, together with the solid showing of Aam Admi Party (AAP), can to an extent be attributed to the longstanding tendency of Indian voters to opt for anti-incumbency. If anti-incumbency proves to be a core theme in the 2014 general election, it will clearly be to Congress's disadvantage overall – although it does not follow, of course, that BJP would necessarily be the main beneficiary," Nomura said in a research note.

Nomura said, from an economic perspective, the state election results are likely to benefit market sentiment, but they do not have any immediate impact on the fundamental outlook.

India’s economic growth is bottoming out. GDP growth rose to 4.8% in Q3 2013 from 4.4% in Q2, led by better exports and good monsoons. However, domestic demand remains very weak. After a modest pickup in auto sales in October, ahead of the festival season, sales have again moderated in November with rising inventories indicating production cuts ahead. Weak demand and increased leverage on corporate balance sheets is likely to delay any meaningful increase in the capex cycle, which remains the key to a sustainable growth uptick. Furthermore, the government’s intent to meets its fiscal deficit target of 4.8% of GDP, with the fiscal deficit over the first seven months already at 84% of its full-year target, suggests large cutbacks in government expenditures in coming months which in turn will be a drag on growth.

"We believe that a stable government following the 2014 general elections could remove one key source of uncertainty and support a more sustainable growth uptick from Q3 2014 into 2015. Thus, we expect GDP growth to remain largely flat at 4.8% in 2014 (from 4.7% in 2013) before rising to 5.7% in 2015," Nomura said.

The Indian election results were consistent with the exit polls. In fact, the BJP's performance in two of the key states of Rajasthan and MP was better than expected.

Nomura said, "These results will be well-received by the market, in our view. The BJP is considered more right-of-center, pro-business and reform-oriented. The fact that runaway spending by the ruling party has not won any votes could be taken as a very positive signal by the markets in terms of voter preference for the kind of policy favoured by the electorate. A strong showing in these state elections by the party will induce the market to ascribe a higher probability of wins in the crucial central elections, which are scheduled to be held in May next year."

"We expect market gains to be led by high-beta domestic cyclicals (banks and industrials, mainly) and expect defensives (consumer, pharmaceuticals, telecom and IT services) to underperform. We maintain our end-March 2014 Sensex target of 22,000. Sector-wise, we remain positive on banks, IT services, pharmaceuticals, oil & gas and power utilities. We are cautious on autos, infrastructure & construction, capital goods, consumer, metals and telecom. We believe the banking sector will benefit most from the election," Nomura concluded.