The loss will make it harder for PM Modi to secure backing for reforms in Parliament's upper house, where his party is in a minority and seat allocations are dependent on parties' strength in the states.
The BJP's heavy defeat in Bihar, a second setback for Prime Minister Narendra Modi's party after Delhi, will galvanise opposition parties who have blocked key reforms like the Goods and Services Tax or GST. Stocks and the rupee are expected to drop when markets open on Monday. (
Bihar election Results: Full coverage)
The BJP and its allies got only 58 seats, with the rival Grand Alliance led by Chief Minister Nitish Kumar winning 178 seats in the 243-member Bihar Assembly. (
Bihar Election Results: Constituencies)
The loss will make it harder for PM Modi to secure backing for reforms in Parliament's upper house, where his party is in a minority and seat allocations are dependent on parties' strength in the states. His government has struggled to pass laws, including the GST, the biggest overhaul of taxes since Independence.
"It raises the likelihood that the Opposition will use this mandate to block important bills," said Milan Vaishnav of Carnegie Endowment for International Peace.
Bihar was seen as the BJP's best chance to win a state election before 2017, when Uttar Pradesh votes. Elections will be held in five states next year, including Kerala, Tamil Nadu and West Bengal, where the BJP has so far failed to make big inroads. (
Bihar election Results: Party Summary)
"The Bihar elections verdict will push back the reforms process as the government will prioritise social spending over fiscal management. GST will get delayed, land bill will get postponed, other economic reforms like paring fuel subsidy will take a back seat," said brokerage house IIFL.
Barclays said, "The results could dampen investor sentiment as it may be seen as an additional stumbling block to the government's reform efforts."
Investors are already fretting over the speed of change in the current regime; PM Modi came to power last year on the promise of economic reforms and more jobs.
The defeat could also dampen the mood as PM Modi heads to Britain for the first bilateral visit by an Indian leader since 2006. PM Modi is due to address more than 50,000 people from the Indian community on Friday at London's Wembley Stadium.