Indian stocks experienced a significant decline following the vote counting in the country’s general election, indicating that Prime Minister Narendra Modi’s party might not secure a majority government.
The benchmark NSE Nifty 50 share index witnessed a nearly 6% drop, marking its most substantial decline since India’s initial Covid lockdowns in March 2020.
Early election results suggest that Mr. Modi’s political party may need to forge alliances and establish a coalition government.
This potential scenario could introduce uncertainty regarding economic policies, as noted by some analysts.
The NSE Nifty 50 index, comprising stocks of several major companies, plummeted by 8.5% at one juncture but concluded the day with a 5.9% decline, settling at 21,884.5 points.
Similarly, the S&P BSE Sensex also experienced a significant downturn, finishing 5.7% lower at 72,079.05.
Furthermore, the rupee experienced a 0.5% decline against the US dollar, marking its most substantial drop in 16 months.
With more than half of the votes counted in India’s general election, Mr. Modi’s Bharatiya Janata Party (BJP) appears unlikely to secure a majority in the 543-member lower house of parliament.
It may need to lean on allies within the National Democratic Alliance (NDA) to form the next government.
Analysts suggest that could lead to some uncertainty over economic policies, such as a push for investment, which has been one of the mainstays of the Modi government’s rule.
“The key question is whether BJP can retain single-party majority,” Ken Peng, head of investment strategy, Asia, at Citi Global Wealth, told Reuters.
“If not, then would its coalition be able to deliver economic development, particularly infrastructure?”
Puneet Sharma, the chief executive and fund manager at Whitespace Alpha, informed Reuters that in the event the new government depends on coalition partners, there could be a shift in focus towards prioritizing welfare over reforms during the July budget.
The Hindu nationalist BJP secured majorities in both 2014 and 2019.
The markets experienced a surge on Monday following exit polls over the weekend, which indicated a significant victory for Mr. Modi and the BJP.
However, it now appears that the BJP may not achieve a majority on its own.
Market analyst Fiona Cincotta informed the BBC that key Indian stock indexes had suffered significant declines.
She noted notable declines in individual stocks, including oil and gas company Reliance Industries and Bank of India.