Tuesday saw the biggest sell-off in Indian stocks in four years as the results of the vote counting indicated that the alliance led by Prime Minister Narendra Modi's Bharatiya Janata Party (BJP) may not secure an overwhelming majority, as anticipated by exit polls.
Early vote tallying for Tuesday's general election appeared to give Modi's coalition a majority, but the results fell far short of the overwhelming majority projected by exit polls.
The BSE index plunged to a low of 72,337.34 points, down 5.4 percent on the day, while the Nifty index fell as high as 5.43 percent to 22,000.60 points. The stocks had a significant decline from the record highs reached the previous day, marking the largest decline since April 2020.
"The change in governance structure has caused a drop in markets," stated Umesh Kumar Mehta, chief investment officer of Samco Mutual Fund.
Mehta stated that the National Democratic Alliance (NDA) might not be able to operate as well as it has for the past ten years if it is need to look for assistance from smaller parties in order to form government.
We believe that the markets ought to be more on edge if there is a split mandate. However, the decline won't be significant as long as the prime minister and current administration remain in place, he continued.
The share index experienced its biggest intraday volatility in 26 months.
Expectations of sustained economic development lifted investors on Monday, sending markets to all-time highs. Exit polls conducted over the weekend had projected a strong win for Modi's NDA.
As of Monday's closure, benchmark indices have more than tripled in value since Modi took office as prime minister in May 2014.
The biggest losses, however, were on Tuesday in the shares of infrastructure, capital goods, and government-owned banks—all of which had seen substantial gains on Monday.
The markets' surge on Monday was fueled by hope for the economy under the new Modi administration.
The rupee fell from its previous closing of 83.1425 to as low as 83.48 against the US dollar. At 7.06 percent, the yield on the benchmark 10-year bond increased by 12 basis points.
According to Garima Kapoor, economist at Elara Capital, "the only thing 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 consumption sector."
It is generally anticipated that foreign investors, who withdrew prior to the election after investing a net $20.7 billion in Indian stocks last year, will become purchasers if the Modi alliance wins a clear majority.
According to provisional exchange statistics, they acquired shares on Monday worth a net 68.51 billion rupees ($824.4 million), while local institutional investors bought equities worth 19.14 billion rupees.
Investors anticipate that the Modi administration will keep concentrating on developing the nation into a manufacturing hub, a goal that has attracted international businesses like Apple and Tesla to establish production as they expand outside of China.
Chief investment officer Steve Lawrence of Balfour Capital, who oversees 350 million euros ($381.61 million) in various funds, stated that "infrastructure is everything in India."
It all comes down to spending on roads and electricity for infrastructure. With the technologies they currently possess, significant expansion is possible.
