The Indian financial markets experienced a significant sell-off as initial vote counting trends indicated that Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP)-led alliance might not secure the anticipated overwhelming majority, as forecasted by exit polls over the preceding weekend.
Kranthi Bathini, the director of equity strategy at WealthMills Securities in Mumbai, commented, “The numbers for NDA are subdued and below expectations. So we are witnessing profit booking as investors are nervous. We need to wait one more hour for greater clarity. But we can see profit booking continuing and extending if these trends continue.”
Over the weekend, exit polls had painted a rosy picture for Modi’s National Democratic Alliance (NDA), prompting the markets to soar to unprecedented highs on Monday, with investors buoyed by the prospect of sustained economic growth.
Traders noted that the markets witnessed a sell-off on Tuesday as investors sought more clarity regarding the total number of seats the NDA would secure.
The Nifty index plummeted by as much as 3.76 percent to 22,389.85 points, while the BSE index descended to a low of 73,659.29 points, marking a 3.67 percent decline for the day. Both indices had reached all-time highs on Monday.
By 04:25 GMT, both markets had marginally rebounded, trading down approximately 2 percent each.
As of the previous day’s close, benchmark indexes had surged by more than threefold in value since Modi assumed office as prime minister in May 2014.
The Indian rupee depreciated to as low as 83.4375 against the dollar compared to its previous close of 83.1425. Meanwhile, the benchmark 10-year bond yield experienced an 8 basis point increase, reaching 7.02 percent in early trade.
Gaurav Dua, senior vice president and head of capital market strategy at Sharekhan, remarked, “Obviously the early results trends are not positive for the markets. But to be sure, as long as the BJP/NDA manages the 272 seats required to form the government, the drop will be only a short-term reaction overall.”
Monday’s market rally was fueled by optimism surrounding the economic outlook under a new Modi-led government.
Vivek Bhutoria, portfolio manager for emerging market equities at Federated Hermes, expressed, “Markets have rallied around the expected election results and it is very hard not to be an optimist on India. Policies are being put in place to attract investments and the realignment of the global supply chain is going to benefit India over time. We are already starting to see some benefits in terms of electronics and chemical exports.”
Foreign investors, who injected a net $20.7 billion into Indian equities last year but had scaled back ahead of the election, are widely anticipated to resume buying.
On Monday, they purchased shares worth a net 68.51 billion rupees ($824.4 million), while domestic institutional investors acquired stocks worth 19.14 billion rupees, based on provisional exchange data.
Investors foresee the Modi government persisting in its efforts to transform India into a manufacturing hub – a venture that has attracted foreign giants such as Apple and Tesla to establish production facilities as they diversify beyond China.
Steve Lawrence, chief investment officer at Balfour Capital, managing 350 million euros ($382 million) across different funds, emphasized, “India is all about infrastructure. It’s all about infrastructure investments; roads and electricity. With the type of technology that they have, you could see a tremendous amount of growth.”
