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India elections: Business winners and losers

It will be about five weeks before results are in for Indian national elections, but it's clear that investors have already cast their vote: Narendra Modi representing the Bharatiya Janata Party.

Prime minister candidate Modi has used India's laundry list of problems as ammunition for his campaign, infusing citizens with hope that the BJP will get India on the right track. The world's largest democracy—it has 814 million registered voters—faces a huge budget deficit, a dearth of private investment, a bank sector saddled with bad loans and rampant corruption.

BJP prime ministerial candidate Narendra Modi addressing an election rally on April 3, 2014 in Ghaziabad, India.
Ajay Aggarwal | Hindustan Times | Getty Images
BJP prime ministerial candidate Narendra Modi addressing an election rally on April 3, 2014 in Ghaziabad, India.

So far, investors like Modi's message, which focuses on attracting investment, slashing red tape and expediting infrastructure projects. A 5.5 percent rally in the Indian Sensex since the beginning of the year is being attributed to Modi's growing lead in the polls.

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India ETF's—the WisdomTree India Earnings Fund, iShares MSCI India ETF and PowerShares India Portfolio—are also all higher over the past month.

Early polls show the BJP with a strong lead over Congress, which has seen its appeal among voters steadily erode over the last six months.

John Krey, international market analyst at S&P Capital IQ, told CNBC that if the BJP wins, "retail, infrastructure and financial could benefit the most provided, of course, Modi is empowered to pursue aggressive reforms of the retail and financial sectors."

If Congress defies expectations and wins the elections, Krey says expect more slow going on reforms to key economic sectors, leaving infrastructure as the only viable avenue of investment.

There are exceptions to Modi's pro-business tone, however. The candidate has said that he would not allow big foreign grocery chains to enter the country—continuing a tradition of Indian resistance to foreign mega-retailers.

Perhaps ironically, the country's Congress party had already approved a joint venture between India's Tata Group and Britain's Tesco, but that deal could be endangered if the BJP wins.

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Regardless of which party wins, some in the investment community believe that business sentiment will improve as long as India can just manage to put together a sound, reliable government.

"If a stable government is put in place, deal flow could rise," said Akhil Gupta, Blackstone's India chairman.

Historically speaking, Indian markets tend to rise after elections. Jyoti Jaipuria, head of India research at Bank of America Merrill Lynch, said in a research note that stocks have produced an average return of 11 percent in the six months following elections. Overall, stocks were positive after five of last seven elections.

Sanjay Nayar, who serves as CEO of private equity firm KKR's India arm, is slightly more cautious than Gupta and warned that India investors may have overplayed stocks.

"Growth can revive pretty quickly in the short term with sentiment change, but a real sustainable uptick will only follow later. Financial markets are ahead of themselves and could deliver lower returns from here on unless earnings growth surprises us," Nayar said.

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Nayar added that the key for now is to clear a bottleneck in projects In power and infrastructure and encourage private and public sector capital expenditures.

"For the longer term, India needs to see real job growth and tax reforms to cut the fiscal deficit and unburden the monetary policy," Nayar.

—By CNBC's Seema Mody. CNBC's John Schoen contributed to this report.