Indian stocks experienced their steepest intraday decline since March 2020 on Tuesday, as election vote counting indicated Prime Minister Narendra Modi’s Bharatiya Janata Party might not secure the overwhelming majority forecast by exit polls, according to Reuters.
With more than half the votes tallied, Modi’s Bharatiya Janata Party (BJP) appeared unlikely to achieve a majority independently in the 543-member lower house of parliament. Consequently, the BJP would need support from allies within the National Democratic Alliance (NDA) to establish a government.
This scenario has triggered concerns regarding the stability of economic policies, particularly the focus on investment-led growth that has characterised Modi’s administration. Notably, the Indian economy expanded by 8.2 per cent in the financial year ending March 2024.
Also Read:
- Prime Minister Modi' BJP Secures Third Term but Loses Ground in Indian General Elections
- Indian Rupee Hits Historic Low Against US Dollar; Implications For Nigeria
- Japan's Ruling Party Elects Shigeru Ishiba as New Leader, Next Prime Minister
- EDO GUBER: Labour Party Insists Olumide Akpata Won Election Despite Scoring 22,763 Votes
“The key question is whether BJP can retain single-party majority. If not, then would its coalition be able to deliver economic development, particularly infrastructure?” stated Ken Peng, head of investment strategy for Asia at Citi Global Wealth.
The NSE Nifty 50 index closed down 5.93 per cent at 21,884.5 points, while the S&P BSE Sensex dropped 5.74 per cent to 72,079.05. The indexes plummeted by as much as 8.5 per cent earlier in the day, following record highs on Monday, marking their most significant intraday fall since the onset of the COVID-19 pandemic lockdown in March 2020.
Puneet Sharma, CEO and fund manager at Whitespace Alpha, commented, “Due to the dependency on coalition partners, the upcoming NDA government may shift its focus towards a welfare-oriented approach rather than concentrating on reforms during the July budget.”
Analysts at brokerage Emkay Global predicted that Indian markets would now face derating due to increased risk perception, suggesting that challenging reforms like modifications to land and labour policies, along with the privatisation of state-run enterprises, are likely “off the table.”
Over the weekend, exit polls had anticipated a significant victory for Modi’s NDA, propelling markets to all-time highs on Monday as investors were optimistic about continued economic growth, Reuters reports.
Foreign investors, who invested a net $20.7 billion into Indian equities last year but retreated before the election, were expected to resume buying if Modi’s alliance secured a decisive mandate. On Monday, they bought shares worth a net 68.51 billion rupees ($824.4 million).
Mike Sell, head of global emerging market equities at Alquity in London, noted, “In our view, the important thing is that the NDA returns to form the next government, which represents policy continuity. Whether they win by 20 or 120 impacts the amount of structural reform that can take place, but ultimately a win is a win and the increasing positivity around the Indian structural growth story will be undiminished.”
The lack of clarity on the NDA’s margin of victory led to the highest intraday volatility on the share index in 26 months. Traders reported that high-frequency trading exacerbated the drop, triggering margin calls. The market’s significant correction was attributed to retail investors carrying heavily leveraged positions, according to Rupak De, senior technical analyst at LKP Securities.
Some investors viewed the downturn as a buying opportunity. Gary Tan, portfolio manager at Allspring Global Investments, stated, “Regardless of the final election count, the Indian economy will continue to benefit from longer-term tailwinds of favourable population demographics and the ongoing geopolitical tensions between China and the US.”
Investors anticipate the Modi government will persist in its efforts to transform India into a manufacturing hub, attracting foreign companies like Apple and Tesla to set up production as they diversify beyond China.
The rupee ended at 83.53 against the dollar, a 0.5% decline for the day, marking its worst single-day fall in 16 months. The benchmark 10-year bond yield rose by 10 basis points, its largest single-day increase in eight months, closing at 7.0382%.