Indian shares set records, the rupee gained and bond yields dropped in opening trade on Monday as exit polls pointed to a third term for Prime Minister Narendra Modi, with investors expecting public spending to maintain economic momentum.
The broader Nifty index rose as much as 3.59 per cent to a record 23,338.70 points while the BSE index surged by 3.76 per cent to a peak of 76,738.89. The Nifty 50 index posted its best intraday gain since February 1, 2021.
The benchmark 10-year government bond yield touched 6.9421 per cent, its lowest since April 8, 2022, falling by four basis points from its previous close. The rupee strengthened to 82.9575, its highest since March 19.
Weekend exit polls projected that the alliance led by Mr Modi's Bharatiya Janata Party (BJP) would get more than 303 seats in the 543-member lower house and probably secure a two-thirds majority – enough to initiate amendments to the constitution.
A win had been widely expected but the margin will be larger than analyst forecasts and will be seen as a positive for equity markets that have scaled record highs on the back of economic growth.
“The markets, at the moment, are pricing in a continuation of this government's policies and approach towards economic management,” said ITI Mutual Fund chief investment officer Rajesh Bhatia.
“We would expect the government to continue with the current policy approach of large capital expenditure [and] focus on production-linked incentives to push the growth cycle further,” Mr Bhatia said, adding that the new government should stay away from tax policies that hurt capital investment.
India's economic growth accelerated to 8.2 per cent in the financial year to March 2024, led by government spending on infrastructure and a boom in real estate, data showed last week.
If Mr Modi's victory is as strong as indicated by the exit polls, analysts say he would have the political capital to keep going and, perhaps, even push for tougher land or labour reforms.
“If exit polls prove correct, it would be a vote for continuity,” Citi analysts said in a client note.
“Medium-term, we expect stocks positively exposed to the focus on infrastructure/logistic and industrial/manufacturing to do well,” they said, citing Adani Ports, conglomerate Larson & Toubro and Bharat Electronics as potential beneficiaries.
Investors also expect the Modi government to continue focusing on turning the country into a manufacturing centre – a project that has convinced foreign companies such as Apple and Tesla to set up production as they diversify beyond China.
Foreigners, who poured a net $20.7 billion into Indian equities last year but had pulled back ahead of the election, may also see the vote's conclusion as an excuse to buy.
“Most clients we met with in recent months appeared to infer that political continuity would contribute to a stable macroeconomic environment and continuing reforms,” said Goldman Sachs analysts.
However, India's exit polls have a patchy record, often getting the outcome wrong. The results of the general election among a billion eligible voters are set to be announced on Tuesday.
“We can expect the sharp rally in the market to sustain, particularly in large-cap stocks, as foreign investors are likely to resume buying Indian equities after a period of continuous selling” if the BJP win is as comfortable as projected, said Swastika Investment managing director Sunil Nyati.
