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India shares plunge as polls show Modi’s mandate slipping


Indian stocks experienced their steepest decline in four years on Tuesday, as early vote counts suggested that Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP)-led alliance might not achieve the overwhelming majority forecasted by exit polls.

While initial vote counting in the general election indicated that Modi’s bloc was on track to secure a majority, the numbers fell significantly short of the landslide victory predicted by exit polls.

The Nifty index plunged as much as 5.43% to 22,000.60 points, and the BSE index dropped to a low of 72,337.34 points, down 5.4% for the day. This marked the largest decline since April 2020, pulling stocks sharply away from the record highs reached just a day earlier.

“Markets have dropped as they are now pricing in the change in governance structure,” said Umesh Kumar Mehta, chief investment officer at Samco Mutual Fund.

Mehta noted that if the National Democratic Alliance (NDA) is compelled to seek support from smaller parties to form a government, it might not function as effectively as it has over the past decade.

“If there is a fractured mandate, we think markets should be more nervous. But as long as the current leadership and the prime minister remain, the drop will not be massive,” he added.

Intraday volatility on the share index soared to its highest level in 26 months.

Exit polls over the weekend had predicted a significant win for Modi’s NDA, propelling markets to all-time highs on Monday as investors were buoyed by expectations of continued economic growth.

Benchmark indexes have more than tripled in value since Modi became prime minister in May 2014, as of Monday’s close.

However, on Tuesday, shares of government-owned banks, infrastructure, and capital goods firms, which had surged on Monday, saw the largest declines.

Monday’s market rally was fueled by optimism over the economic outlook under a renewed Modi-led government.

The rupee fell to as low as 83.48 against the dollar from its previous close of 83.1425. The benchmark 10-year bond yield rose by as much as 12 basis points to 7.06%.

“The only thing that a lower number than 300 for NDA will do is compel a rethink for the main party on policy approach so far and could mean policies to address K-shaped recovery and hence positive for the consumption sector,” said Garima Kapoor, economist at Elara Capital.

Foreign investors, who had injected a net $20.7 billion into Indian equities last year but had pulled back ahead of the election, are widely expected to resume buying if the Modi alliance secures a decisive mandate.

On Monday, foreign investors bought shares worth a net 68.51 billion rupees ($824.4 million), while domestic institutional investors purchased 19.14 billion rupees in stocks, based on provisional exchange data.

Investors anticipate that the Modi government will continue to focus on transforming India into a manufacturing hub—a project that has attracted foreign companies, including Apple and Tesla, to set up production facilities as they diversify beyond China.

“India is all about infrastructure,” said Steve Lawrence, chief investment officer at Balfour Capital, who manages 350 million euros ($381.61 million) across various funds.

“It’s all about infrastructure investments; roads and electricity. With the type of technology they have, you could see a tremendous amount of growth.”

($1 = 0.9172 euros)

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