BENGALURU (Reuters) -Indian Prime Minister Narendra Modi’s alliance was heading towards a majority in vote counting trends in the general election on Tuesday, but the numbers so far showed the margin of victory may not be as large as exit polls suggested, leading to a rout across markets.
MARKET REACTION:
STOCKS: The Nifty index dropped 8%, set for their worst day in four years and erasing their gains for 2024.
FOREX: The rupee was at 83.3575 against the U.S. dollar as of 09:55 a.m. IST, having touched an intra-day low of 83.4375 in early trading.
BONDS: India’s benchmark 10-year yield was at 7.0130%, after hitting their highest in nearly two weeks earlier.
Here are some reactions from market analysts: DIPAN MEHTA, FOUNDER DIRECTOR AT ELIXIR EQUITIES, MUMBAI
“The biggest disappointment for the market is the fact that Bharatiya Janata Party (BJP) does not have a majority (yet). I don’t need to say more, but that opens up Pandora’s box because all the other players … are all quite volatile.” SONAL BADHAN, ECONOMIST, BANK OF BARODA, MUMBAI:
“It looks like the National Democratic Alliance (NDA) will be sworn back to power and policy continuity is a positive. However, if the BJP does not get a majority on its own, then some slowdown in policy decisions can be expected.” VASU MENON, MANAGING DIRECTOR OF INVESTMENT STRATEGY, OCBC, SINGAPORE
“A narrower-than-expected victory for Modi’s alliance may raise doubts about the new government’s ability to push through politically difficult reforms seen as crucial to sustain India’s economic growth, which is already the world’s fastest.”
“Despite this the fact remains that the BJP-led alliance is still set to win a third term, which means continuity in the government’s infrastructure and manufacturing-led drive to boost economic growth.”
“Valuations for the Indian stock market is not cheap but the macro outlook for India remains more promising than many other major markets, and sharp price corrections can create some interesting investment opportunities.” MIKE SELL, HEAD OF GLOBAL EMERGING MARKET EQUITIES, ALQUITY, LONDON
“The important thing is that the NDA return to form the next government, which represents policy continuity. Whether they win by 20 or 120 impacts the amount of structural reform that can take place, but ultimately a win is a win and the increasing positivity around the Indian structural growth story will be undiminished.” UMESH KUMAR MEHTA, CHIEF INVESTMENT OFFICER, SAMCO MUTUAL FUND, MUMBAI
“Markets have dropped today as they are now pricing in a likely change in governance structure because the current leads/trends hint at an alliance and not an absolute majority for BJP, which was the case in the last 10 years.”
“If it is an NDA coalition government, then markets will wait for the budget to get clarity. Till then, we expect markets to be in a state of flux and they will try to correct or settle down at or around this levels.”
“If there is a fractured mandate, we think markets should be further nervous. But so long as the current leadership and the Prime Minister stays, the drop will not be massive.” MALCOLM DORSON, SENIOR PORTFOLIO MANAGER AND HEAD OF EMERGING MARKETS STRATEGY AT GLOBAL X, NEW YORK
“We are positive on prospects for the election outcome, but investing in India is about much more than this election. It’s a 20-year story, and not one the depends on the next 2 weeks.”
“However, it is exciting as this election brings a spotlight to India, not only as an opportunity to present its recent improvements, but also to showcase its massive runway for growth. The election also shines a light on India as a rising star built on democracy, just as China feels pressure from international investors.” GARY TAN, PORTFOLIO MANAGER, ALLSPRING GLOBAL INVESTMENTS, SINGAPORE:
“As the India markets have rallied into the elections with expectations of a decisive win by BJP and its allies, anything less than a 350 seat win by the ruling coalition can result in a meaningful short term pull back in the India market.” SIDDHARTHA KHEMKA, HEAD RETAIL RESEARCH, MOTILAL OSWAL FINANCIAL SERVICES, MUMBAI
“The sharp drop in Nifty is because the results, although early trends, presents a picture that is a lot different from what the exit polls had shown. A 10% variability from the exit polls is something that the markets would have absorbed easily.”
“The market does not want a hung parliament or a coalition government, where you will have a lot of delays in decision making.” MADHAVI ARORA, LEAD ECONOMIST, EMKAY GLOBAL, MUMBAI:
“The margin of win could decide the aggressiveness of next leg of reforms in land, labour and capital . The upcoming budget will become all the more important to gauge any shift in policy priorities, especially with regards to spending mix of capex and revex.” GAURAV DUA, SENIOR VICE PRESIDENT AND HEAD OF CAPITAL MARKET STRATEGY, SHAREKHAN, MUMBAI
“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.”
“But being in an alliance could deter the BJP, if it wins, from taking reforms that are not very popular, but rather structural.”
“However, if the results are inconclusive and we get a fractured mandate, then the NDA will have to attract some independents or other parties, which is never a good news for the market.”
(Reporting by Bharath Rajeswaran and Siddhi Nayak in Mumbai, Bansari Mayur Kamdar in Bangalore, Ankur Banerjee in Singapore; Compiled by Indranil Sarkar in Bengaluru; Editing by Savio D’Souza and Nivedita Bhattacharjee)
