(Bloomberg) — India’s stock market plunged, wiping out $386 billion in market value, after figures showed Prime Minister Narendra Modi’s ruling party struggled to win a majority of seats in a stunning national election. result after exit polls showed him on course for a landslide victory.
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The NSE Nifty 50 Index tumbled 5.9% in Mumbai, its worst day in more than four years. Counts showed Modi’s Bharatiya Janata Party and its allies in the National Democratic Alliance in the lead with more than 290 seats, just over the 272 needed for a seat-sharing arrangement. majority in parliament and far below the roughly 350 they won in 2019. The rupee fell the most in a year and ten-year yields rose.
A smaller-than-expected victory for Modi’s alliance will raise questions about the new government’s ability to push through politically difficult reforms to land and labor laws – seen by some investors as crucial to India’s economic growth, which is already the fastest in the world. Before the elections started on April 19, Modi had boldly predicted that his alliance would win as many as 400 seats.
“Since the BJP does not have a simple majority, bargaining power shifts significantly within the alliance,” Sunil Tirumalai, strategist at UBS Group AG, wrote in a note. “Most scenarios from now on could be interpreted negatively by the market compared to last week’s expectations.”
More than two dozen opposition parties, led by Rahul Gandhi, formed a united front called the Indian National Developmental Inclusive Alliance in a bid to defeat Modi. The alliance, a mix of regional and caste-based groups, focused on appealing to voters who felt left out of India’s growth story, which has been characterized by growing inequality, widespread unemployment, rising costs of living and a growing demand for social support. It was on course to win more than 180 seats.
Businesses linked to the government’s development goals plummeted, with Adani Ports & Special Economic Zone Ltd. took a dive. Ten-year bond yields rose eight basis points to 7.03%, the biggest increase since October.
The Nifty plunged as much as 8.5% at one point, almost hitting its first circuit limit since the Covid-era crash in March 2020. The sell-off had echoes of the 2004 elections, when the BJP’s unexpected defeat triggered a market crash caused. Trading was suspended twice as the S&P BSE Sensex fell more than the 10% limit, the first time in the exchange’s history.
According to data on the exchange’s website, this defeat has eroded the combined market value of BSE-listed companies by $386 billion to $4.73 trillion.
Volatility spiked, with a 30-day forward indication implying the NSE would post its biggest rise in two years. An index of so-called Modi stocks, as dubbed by CLSA, fell, with Adani Group’s flagship Adani Enterprises Ltd. was among the biggest decliners.
Ahead of the exit polls, which had projected the BJP-led alliance to win more than 350 of the 543 seats in the lower house of parliament, a Bloomberg survey had shown that stock prices could plunge by as much as 10% if the BJP fails to cross the line. halfway to 272 seats. Opposition leaders had dismissed the exit polls when they were released over the weekend, with a senior Congress party leader describing the initial results on Tuesday as a “pleasant surprise”.
“We were against a lot of cynicism,” Salman Khurshid told deKoder, an online news channel. “Our own reading on the ground was that something like this will happen or something better than this will happen.”
While the BJP-led alliance will still win a third term, Modi will now be more dependent on coalition partners for support – including two regional party leaders who have often switched allegiances in the past. One of them – Nitish Kumar, chief minister of the northern state of Bihar and leader of the Janata Dal (United) – was a member of the opposition alliance when it first formed last year before defecting. The other is N Chandrababu Naidu from the southern state of Andhra Pradesh, who has also worked with several coalitions.
Nevertheless, investors are counting on continuity in government infrastructure and the manufacturing-led drive to stimulate growth.
“I still think Modi’s policy direction is likely to hold, which should support the Indian economy in the longer term,” said Dong Chen, chief Asia strategist at Banque Pictet. “Valuations are expensive, but we will keep a close eye on any corrections as this could create some entry opportunities.”
Modi praised his government’s efforts to boost capital formation, which will help keep India’s economy among the fastest growing in the world.
“Indian markets were trading at a market cap of 140% to GDP,” said Sameer Kalra, founder of Target Investing Pvt., referring to expensive stock valuations. “If there is any uncertainty about future policy steps, there could be a major correction.”
–With help from Abhishek Vishnoi, Khushi Malhotra, Malavika Kaur Makol and Kartik Goyal.
(Updated bond yields in sixth paragraph. An earlier version corrected the market value erosion figure in the headline, first paragraph.)
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