by Bharath Rajeswaran and Ankur Banerjee
BOMBAY/SINGAPORE, June 4 (Reuters) – India’s two main stock indexes were at a four-year low on Tuesday after the first counting of votes following the legislative elections which gave Prime Minister Narendra Modi’s alliance a majority less significant than anticipated by the polls.
Around 08:20 GMT, the Nifty index fell 5.15% to 22,066.4 points, while the BSE index fell 5.03% to 72,625.95 points, after having both touched their lowest since April 2020.
However, both indices had risen sharply the day before when the markets anticipated a tidal wave in Parliament from the Bharatiya Janata Party (BJP) of Narendra Modi and its allies within the National Democratic Alliance (NDA).
“Markets are retreating as they now price in the change in governance structure,” says Umesh Kumar Mehta, chief investment officer at Samco Mutual Fund.
According to the latter, if the NDA is forced to seek support from smaller parties to form a government, it may not be able to function as effectively as it has over the past decade.
“If the mandate is fragmented, we think the markets will be more nervous. But as long as the current leaders and the prime minister remain in place, the fall will not be massive,” he added.
HIGH VOLATILITY
Volatility in the stock market has reached its highest level in 26 months.
Exit polls over the weekend predicted a big victory for the NDA, which translated into a sharp rise in markets on Monday as investors anticipated sustained economic growth.
Before Tuesday’s fall, India’s benchmark stock indices had more than tripled in value since May 2014, when Narendra Modi became prime minister.
From a sector perspective, shares of state-owned banks, infrastructure companies and capital goods companies, which rose sharply on Monday, recorded the biggest declines on Tuesday.
At foreign exchange, the Indian rupee fell to 83.48 against the dollar after closing Monday at 83.1425. The yield on the benchmark 10-year bond rose 12 basis points to 7.06%.
TRANSFORMATION OF THE COUNTRY
Foreigners, who invested $20.7 billion in Indian stocks last year but withdrew before the election, are widely expected to be in a long position if Narendra Modi’s alliance gets a firm mandate.
“The only thing that a figure below 300 (number of seats in Parliament) would change for the NDA will be to force the main party to rethink its political approach,” notes Garima Kapoor, economist at Elara Capital.
These foreigners bought shares worth a net 68.51 billion rupees (757.1 million euros) on Monday, while domestic institutional investors bought shares worth 19.14 billion rupees, according to provisional stock market data.
Investors expect the Narendra Modi government to continue its focus on transforming the country into a manufacturing hub, a move that has allowed foreign groups like Apple and Tesla to diversify outside of China.
“Infrastructure is the topic in India,” notes Steve Lawrence, investment director at Balfour Capital, which manages 350 million euros in different funds.
“These are investments in infrastructure, roads and electricity. With the technology that the country has, we could see significant growth,” he adds.
(Written by Swati Bhat, French version Claude Chendjou, edited by Blandine Hénault)
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