Narendra Modi
Indian Prime Minister Narendra Modi gestures to supporters as he sits with his mother, Heeraben Modi, not seen, on her front porch after seeking her blessing in Ahmedabad, India, May 16, 2014. Getty Images/Kevin Frayer

India voted overwhelmingly to return Narendra Modi to power, endorsing his work in the last five years as prime minister with a bigger mandate than he received in 2014, shocking the rival Congress party which had hoped to revive its fading political influence across India.

Exit polls had predicted victory for Modi and his Hindu nationalist Bharatiya Janata Party but the Congress, whose leader Rahul Gandhi had led an intense campaign that personally targeted Modi both on the field and on social media, seemed convinced it would return to power.

But on Thursday, when the results came in, Modi and his party had improved on their last year's score in the 542-member lower house of the Indian Parliament, the Lok Sabha. The BJP by itself had won or was leading in 299 seats, 17 more than in 2014, and 348 along with its allies.

The Congress won or was leading in 54 seats, 10 more than in 2014, and 92 along with its allies. The rest of the seats were won by regional parties and independents.

The Congress' gains were mostly in the south of the country, showing that voters in India's northern heartland -- considered kingmakers because of the large number of seats they elect representatives for -- were turned off by Gandhi's personal attacks on Modi over a deal to buy French-built Rafale fighter jets, and his attempts to woo Muslim voters by raising fears about a Hindu-dominated political system.

The markets, which jumped Wednesday on the exit poll results, continued their upward trajectory and hit all-time records. The Sensex hit the 40,000 mark and the Nifty 12,000 in late-morning trade. They later retreated on profit-booking and closed lower -- the Sensex down 299 points and the Nifty down 81 points.

Modi staying on for a second term with an emphatic majority underscores policy continuity and stable political environment for the next five years, DBS economist Radhika Rao said in a note. She added that while the Indian markets may be unable to skirt weak global risk sentiments, they could fare better on relative basis versus those most exposed to the fallout of the U.S.-China trade tensions.

During the campaigning, Time magazine put Modi on its cover, with the headline "Divider-in-Chief," referring to the media portrayal of him as a politician who tries to divide people on religious lines. Perhaps to address those concerns, in a tweet to the nation after the results were declared, Modi promised an "inclusive India."

He will be sworn in as India's 15the prime minister on Sunday, 26 May.

The surprising scale of Modi's victory can be attributed to the methodical and sharply targeted campaign that he and his team ran, his ability to connect to voters with a national narrative against the more limited ones offered by regional rivals, and his success in catalyzing a reverse consolition of Hindu votes in response to the Congress's attempts to use Muslim and Christian vote banks to return to power.

Gandhi himself lost in his family's long-time stronghold seat Amethi to Smriti Irani, a minister in Modi's government; he won a second seat he contested from the southern state of Kerala, where the Hindu community is not a majority -- cementing the public perception of him as a leader who has lost credibility in the north Indian Hindu heartland.

Narendra Modi WEP 2018
Indian Prime Minister Narendra Modi gestures as he delivers a speech on the opening day of the World Economic Forum 2018 annual meeting on Jan. 23, 2018, in Davos, Switzerland. Getty

A Lesson For the Dems?

Modi's victory defying the personal assaults, which were often exaggerated and unsubstantiated, by political rivals in 2014 and again this year may perhaps point to how the 2020 U.S. presidential race would shape up. In India, the Congress and its allies were seen by voters as overreaching when they ran a political campaign that focused on vilifying Modi, but with little else in terms of positive development goals or plans.

In the U.S., the Dems seem to be following the same playbook with their repeated attempts to corner President Trump over the Mueller report findings and launch impeachment proceedings against him.

Some of Modi's economic reforms, like the implementation of the goods and services tax across the country, and the demonetization of high-value currency bills, were blamed for their poor execution and the opposition had tried to use those against him.

Gandhi also promised to deposit Rs 72,000 ($1,030) into the account of every poor person in India annually. But all these failed to influence the voters.

But Modi's tough stance against cross-border terror from Pakistan seems to have influenced voters -- the Indian Air Force crossed the line of control in Kashmir and bombed a few terror camps, and in an air skirmish with the Pakistan Air Force the next day, it claimed to have shot down an F-16 fighter jet. India itself lost a MiG 21 in that fight and the pilot was captured by the Pakistanis, but soon returned.

Working with the United States, Modi also managed to get Masood Azhar, the Pakistan-based chief of the terror outfit Jaish-e-Mohammed listed a global terrorist -- a move that was repeatedly resisted by China.

For voters long accustomed to Congress-led governments that were seen as reticent to punish Pakistan and its proxies for repeated terror attacks, including the 26/11 attacks in Mumbai, this was something new. The Indian army also stood its ground in a weeks-long standoff with Chinese troops at the northern border, which again was in contrast to earlier episodes when the troops tried to avoid a confrontation despite deep Chinese military intrustions.

Modi's Economic Policies Changed India But Challenges Ahead

Modi has changed the economic face of the country in the five years he has been in power -- some of the changes very visible, some not so. Among the visible ones are the changes in the country's railway system, the largest public enterprise in the world. Many railway stations, which were once crowded, dirty and with scant facilities for passengers, have been transformed into glitzy modern buildings. Several fast trains have been introduced and he is also trying to build a line for bullet trains with Japanese collaboration.

The demonetization of currency bills caused some hardships as liquidity dried up for weeks, but it also vaulted India into the ranks of the fastest growing digital economies in the world. The economy is expected to grow 7.5 percent this year and become the world's fifth largest.

But Modi faces some stiff challenges ahead, from rising oil prices and jobless growth, especially. Still he is not known to take challenges head-on and probably that is what has endeared him with the voters. The 68-year-old sets himself a punishing schedule, forcing the bureaucrats who work with him to struggle to keep pace. Many of his handpicked officers are expected to leave the Prime Minister's Office if he returns to power, reports had said.

DBS' Rao said the attention now shifts to the economic to-do list, saying the GDP data for March, which is due in May, is likely to see growth slip from 6.2-6.4 percent from 6.6 percent in 4Q18. She said the new government is likely to prioritize attention on slower job creation, which has led to weakening consumption and hurt manufacturing activity.

DBS continued to expect a 25 basis point rate cut in June from the central bank, and said the government is expected to improve banks’ capital levels through periodic equity injection and pursue further consolidation of the sector.