Bharat Rajeswaran and Ankur Banerjee
MUMBAI/SINGAPORE (Reuters) – Indian financial markets fell sharply on Tuesday morning as early vote count trends showed Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) alliance was unlikely to win the overwhelming majority of votes predicted by exit polls. election weekend.
“The NDA numbers are small and below expectations. So we are seeing profit taking as investors get nervous. We need to wait another hour for more clarity,” said Kranti Bathini, director of equity strategy at Wealthmills Securities in Mumbai.
“But we will see profit taking continue and increase if these trends continue,” he said.
Exit polls over the weekend predicted a big victory for Modi’s National Democratic Alliance (NDA), sending markets soaring to record highs on Monday as investors were buoyed by expectations of robust economic growth.
Traders said markets fell on Tuesday as investors awaited more clarity on the total number of seats the NDA will get.
The Nifty index fell as much as 3.76 per cent to 22,389.85 points, while the BSE index fell to a low of 73,659.29 points, down 3.67 per cent on the day. Both indexes hit their all-time highs on Monday.
However, by 0425 GMT, both markets had recovered slightly and were down about 2% each.
As of Monday’s close, major indexes had risen just over threefold since Modi became prime minister in May 2014.
The rupee fell to 83.4375 against the US dollar from its previous close of 83.1425. In early trading, the benchmark yield rose 8 basis points to 7.02%.
“It is clear that the early performance trends are not positive for the markets. But of course, as long as the BJP/NDA controls the 272 seats required to form the government, a fall will only be a short-term reaction overall,” Gaurav said. Dua, Senior Vice President and Head of Capital Markets Strategy at Sharekhan.
Monday’s rally in markets was driven by optimism about the economic outlook under the new Modi-led government.
“Markets have rallied around the expected election results and it is very difficult not to be bullish on India,” said Vivek Bhutoria, portfolio manager for emerging markets equities at Federated Hermes (NYSE:).
“Policies are being put in place to attract investment and reshaping the global supply chain will benefit India over time. We are already starting to see some benefits in terms of electronics and chemicals exports.”
Foreigners, who poured $20.7 billion into Indian stocks last year but pulled out before the elections, are expected to return to buying.
They bought shares worth a net 68.51 billion rupees ($824.4 million) on Monday, while domestic institutional investors bought shares worth 19.14 billion rupees, according to preliminary exchange data.
Investors expect the Modi government to continue to focus on turning the country into a manufacturing hub, a project that has attracted foreign companies including Apple (NASDAQ:) and Tesla (NASDAQ:) to set up manufacturing as they diversify outside China.
“India is all about infrastructure,” said Steve Lawrence, chief investment officer at Balfour Capital, which manages €350 million across various funds.
“It’s all about investment in infrastructure: roads and electricity. With the technology they have, you can see huge growth.”