Indian stocks have suffered their worst intraday fall since March 2020 and foreign investors were the biggest sellers in history as vote counting trends in the general election suggested Prime Minister Narendra's alliance was unlikely Modi obtained the overwhelming majority predicted by exit polls.
With more than half of the votes counted on Tuesday, Modi's Bharatiya Janata Party (BJP) seemed unlikely to win a majority on its own in the 543-member lower house of parliament and would likely need allies in the National Democratic Alliance ( NDA) to form the government.
That could lead to some uncertainty over economic policies, such as the push for investment-led growth that has been a cornerstone of the Modi government. The Indian economy grew 8.2 percent in the financial year ending March 2024.
“The key question is whether the BJP will be able to retain a single-party majority,” said Ken Peng, head of Asia investment strategy at Citi Global Wealth. “If not, could your coalition deliver economic development, particularly infrastructure?”
The NSE Nifty 50 index closed down 5.93 per cent at 21,884.5 points, and the S&P BSE Sensex fell 5.74 per cent to 72,079.05. The indices fell as much as 8.5 percent earlier in the day, after hitting record highs on Monday.
At the day's low, the indices saw their biggest intraday drop since March 2020, when stocks were hit by the first lockdown during the COVID-19 pandemic.
“Due to dependence on coalition partners, the next NDA government may shift its focus towards a welfare-oriented approach instead of concentrating on reforms during the July budget,” said Puneet Sharma, chief executive officer and administrator. of Whitespace Alpha funds.
Indian markets are likely to decline now due to heightened risk perception, said analysts at brokerage Emkay Global, which believes difficult reforms such as changes in land and labor policies, along with the privatization of state-owned companies, were “out of the question.” table”.
Exit polls over the weekend had projected a big victory for Modi's NDA, catapulting markets to record highs on Monday as investors were buoyed by expectations of sustained economic growth.
'Policy continuity'
The benchmark indices had tripled in value since Modi became prime minister in May 2014, as of Monday's close.
Foreign investors, who poured a net $20.7 billion into Indian stocks last year but pulled out before the election, were widely expected to become buyers if the Modi alliance won a decisive mandate.
On Tuesday, foreign institutional investors sold a record 124.36 billion rupees (about $1.5 billion) worth of Indian stocks, according to provisional data released late Tuesday.
On Monday, they had bought shares worth a net 68.51 billion rupees ($824.4 million).
“In our view, the important thing is that the NDA re-forms the next government, which represents policy continuity,” said Mike Sell, head of global emerging markets equities at Alquity in London.
“Whether they win by 20 or 120 influences how much structural reforms can be carried out, but ultimately a win is a win and the growing positivity around India's structural growth story will not diminish.” “.
The lack of clarity over the NDA's margin of victory saw the intraday volatility of the stock index hit its highest level in 26 months.
Traders said selling by high-frequency traders accelerated the decline and the sharp drop prompted margin adjustments.
The market is witnessing a significant correction due to margin calls as retail investors were holding highly leveraged positions, said Rupak De, senior technical analyst at LKP Securities.
Some investors saw the decline as a buying opportunity.
“Regardless of the final election count, India's economy will continue to benefit from the long-term tailwinds of favorable population demographics and ongoing geopolitical tensions between China and the United States,” said Gary Tan, portfolio manager at Allspring. Global Investments.
Investors hope Modi's government will continue to focus on turning the country into a manufacturing hub, a project that has attracted foreign companies including Apple and Tesla to set up production as they diversify beyond China.
The rupee ended at 83.53 against the US dollar, down 0.5 per cent on the day, marking its worst single-day fall in 16 months. The yield on the benchmark 10-year bond rose 10 basis points on the day, its biggest daily rise in eight months, ending at 7.03 percent.
