India's gain could be Modi's loss, as reported in CNBC's Inside India newsletter.

This report is from the CNBC "Inside India" newsletter, which provides timely and insightful news and market commentary on the emerging powerhouse and the big businesses driving its rapid growth. If you find it interesting, you can subscribe here.

The big story

India changed in a day.

Earlier this week, the perception of Indian politics was revealed through the results of the marathon six-week-long General Elections.

Despite predictions of a supermajority for Prime Minister Narendra Modi's party, Indians elected only 240 BJP lawmakers to India's 543-seat Parliament, which is less than a simple majority.

The BJP, as the largest party, will form a coalition government with the help of smaller parties before the elections.

This weekend, it is likely that Modi will be sworn in as prime minister, but the weakened mandate has harmed his reputation.

"According to Tom Miller and Udith Sikand of Gavekal Research, Modi's invincibility has been shaken, and he will face political challenges not only from opposition leaders but also from internal party rivals in the future."

Speculators have floated the idea that the opposition alliance could form a government by enticing the BJP-led alliance's smaller coalition partners over to their side, despite the dent to the BJP.

Stable coalition

The prospect of Modi serving a third term in office provides stability and predictability for Wall Street.

According to Malcolm Dorson, head of emerging markets strategy at Global X, the market in India is experiencing a positive impact due to the leadership of Modi, but it is important to remember that Modi remains in power and the democratic election system in India is functioning properly. Global X's parent, Mirae Asset, is one of the largest foreign asset managers in India.

"Aastha Gudwani, an economist at Bank of America, advised that political continuity should follow leadership continuity in a research note to clients. She noted that while some reforms may be delayed until the middle of a coalition's tenure, the overall reform agenda remains intact."

The agricultural sector in India is inefficient, and protests by farmers led to the previous government rolling back reforms within months of enactment.

Analysts predict that the prime minister's new administration may not implement these reforms due to a low probability.

"The Gavekal Research analysts stated that while Modi's liberalization of agricultural, land, and labor markets may hinder growth, it could also make India more secure socially by discouraging the BJP from pursuing extreme Hindu nationalist policies."

Dorson, who is also involved with the Global X India Active ETF, believes that "a balanced government is typically viewed as a market positive because it establishes a system of checks and balances."

Stock market returns

Other advantages may result from Modi's departure from the authoritarian political approach.

Coalitions have been profitable to investors, as data shows that India's Nifty 50 index rose by an average of 109% per parliament under the past four administrations, two of which were coalitions.

Macro stability positively impacts share prices, making the election outcome bullish, according to Morgan Stanley's equity strategists, led by Ridham Desai.

"We anticipate that the investment will generate 12-15% annual returns compounded over the next five years."

The direction of Modi's new government will be first seen by investors when it unveils its budget in July. Will the government continue to invest in infrastructure companies or will it prioritize increasing welfare subsidies that may benefit consumer durable stocks?

Goldman Sachs' Pulkit Patni stated in a note to clients on Thursday that the directional focus for increased capex is likely to continue, with manufacturing continuing to receive policy support, in line with the views of the economists.

Given the recent growth of railways and defense sectors, the Wall Street bank identified them as "key areas to monitor."

BNP Paribas' India equities head, Abhiram Eleswarapu, stated that investors may hold off on making significant decisions as stocks have experienced substantial growth over the past three to four years.

Eleswarapu stated on CNBC's Inside India that investors may wait for announcements to translate into actual execution because much of the good news is in the price.

More on the elections

CNBC's Sri Jegarajah reported from New Delhi that the prime minister will need to rely on his 25 or so alliance partners to achieve his economic vision, as Tanvir Gill answered the five big questions people have been asking after Modi's weaker-than-expected election win.

Modi faces challenges in persuading smaller parties, some of whom may not align with his economic or political agenda for the country, as reported by CNBC's Sumathi Bala.

Some U.S. investors who have invested time and money into relationships with India are expressing concerns, according to CNBC's Global Markets Reporter Seema Mody.

Amala Balakrishner interviewed investors who selected their top 10 stocks in the infrastructure, digital economy, startup, and consumer discretionary sectors.

What happened in the markets?

The Nifty 50 index has risen 5.16% this year, despite a 6% loss on election results day. It is now heading for a 1.3% gain this week.

The Indian government bond yield has remained relatively low, with a yield of 7.02%, slightly higher than the previous week.

This week on Biz Focus Hub, Akasa Air's CEO, Vinay Dube, stated that India's aviation infrastructure must match aircraft orders for the next seven years, something he couldn't have said five or seven years ago.

James Sullivan, JPMorgan's head of Asian Pacific equity research, stated that India's GDP growth is less reliant on oil consumption than previously. This "radical transformation" is predicted to result in a more efficient economy and aid India's currency, according to Sullivan.

What's happening next week?

The Reserve Bank of India (RBI) will meet to establish interest rates on Friday, according to economists surveyed by Reuters, who predict the RBI will maintain rates at 6.50%.

It is predicted that the U.S. Federal Reserve will maintain rates during its upcoming meeting.