Indian stocks plunged Tuesday as vote counting in the country’s election suggested Prime Minister Narendra Modi’s dream of a landslide victory is at risk, raising doubts about his ability to push through more aggressive economic reforms.
India’s benchmark Sensex index, which tracks 30 large companies, and the broader Nifty 50 index each closed down by nearly 6%.
The worst daily drop for Indian stocks since 2020 came just 24 hours after both indexes hit record highs as weekend exit polls prompted experts to predict a resounding victory for Modi. The world’s biggest election concluded on Saturday.
The 73-year-old ran on his economic record over the past 10 years, a period of robust growth for India. His Bharatiya Janata Party (BJP) was aiming to win a 400-seat supermajority in the 543-seat lower house of parliament, but preliminary results show the opposition Congress party is performing better than some analysts expected.
A party or a coalition needs 272 seats to form a government. In India’s last election in 2019, the BJP won 303 seats.
If the final results confirm that Modi has underperformed in the polls, key economic reforms may be put on the back burner.
“The (early) election results are showing a less than halfway mark (272 seats) for the current BJP government, pointing towards a coalition government,” said Yashovardhan Khemka, Senior Manager, Research & Analytics at Mumbai-based asset management firm Abans Holdings.
“This will lead to dependence on allies in making key policy decision… which will lead to policy paralysis and uncertainty in the government’s functioning,” he added.
India is the world’s fastest growing major economy and is comfortably placed to expand at an annual rate of at least 6% in the coming few years, but analysts say it needs to achieve growth of 8% or more if it wants to become an economic superpower.
Sustained expansion would push India higher up the ranks of the world’s biggest economies, with some observers forecasting the country to become number three behind only the United States and China by 2027.
The country’s stock markets have performed well during Modi’s tenure. Earlier this year, the National Stock Exchange of India (NSE) overtook both the Shenzhen Stock Exchange and the Hong Kong Exchange to become the world’s sixth largest bourse, data from the World Federation of Exchanges showed.
But investors have complained about the high price of Indian stocks and some analysts believe a correction could be healthy for markets.
According to Manish Jain, head of institutional business at Mirae Asset Capital Markets, if “valuations get more reasonable from here on,” it would attract more investments to the world’s fastest growing major economy, as “India is a long term structural growth story.”
