Indian stock indices experienced a significant decline on the day the Lok Sabha election results were announced. The BJP, underperforming expectations, seemed unlikely to secure a majority on its own, contrary to exit poll predictions.
The BJP-led National Democratic Alliance (NDA) was leading in nearly 300 seats, while the opposition INDIA alliance was ahead in 229 seats, according to the Election Commission of India.
The prospect of a BJP-led coalition government has generated market anxiety, leading to a sharp drop in stock indices. The BJP, seen as pro-industry with policies favoring economic growth and market stability, failing to achieve a clear majority has raised concerns about forming a stable government and continuing economic reforms.
At the close, the Sensex had fallen to 72,079.05 points, a decrease of 4,389.73 points or 5.74%, while the Nifty ended at 21,884.50 points, down 1,379.40 points or 5.93%. All Nifty sectoral indices, except Nifty FMCG, were in the red. Nifty Metal, Nifty Bank, Nifty Financial Services, Nifty PSU Bank, Nifty Private Bank, Nifty Realty, and Nifty Oil and Gas were among the hardest hit, as per NSE data.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that the steep decline was due to results falling short of market expectations based on exit polls. He suggested that a BJP majority would have prevented market disappointment, and there are concerns that Modi’s third term might prioritize welfare over economic reforms.
During the afternoon, Indian equity indices dropped over 8% as poll trends showed a tighter race for the NDA. The Sensex recorded its worst session in over four years, reminiscent of the COVID-19 market impact. Jaykrishna Gandhi, Head of Business Development at Emkay Global Financial Services, mentioned that markets had rallied 3-3.5% on Monday in anticipation of a Modi-led NDA win, led by PSU banks, but Tuesday’s results caused a significant downturn. He anticipates a 7-10% downside for broader markets and recommends shifting from alpha stocks to defensive sectors like FMCG, IT, and Pharma.
The Rupee also weakened against the US dollar, depreciating by 38 paise to close at 83.53, compared to 83.15 on Monday. Jateen Trivedi, VP Research Analyst at LKP Securities, predicted that the Dollar-Rupee exchange rate might continue rising, with 83.40 as immediate support and 83.90 as a potential peak.
Manish Chowdhury, Head of Research at StoxBox, stated that the markets reacted sharply to the NDA leading in around 290 seats, less than projected. Despite the NDA still likely forming a government with coalition support, there is market apprehension about strong decision-making and the continuation of the reformist approach from previous terms. He advised waiting for a clearer outcome.
Shrikant Chouhan, Head of Equity Research at Kotak Securities, noted the current market volatility and uncertainty, advising traders to remain cautious in the coming sessions.
On Monday, Indian benchmark indices had closed at record highs, driven by investor optimism after exit polls predicted a comfortable majority for the NDA government. The Nifty 50 had gained 733.20 points to close at 23,263.90, while the BSE Sensex had surged 2,507.47 points to close at 76,468.78.
