Indian markets hit record highs as exit polls forecast Modi victory

Indian markets hit record highs after exit polls forecast a landslide election win for Prime Minister Narendra Modi, whose third term promises investors a resumption of his infrastructure-led economic drive and market-friendly reforms.

A batch of polls released over the weekend by Indian TV stations and agencies showed Modi’s Bharatiya Janata party increasing its presence in India’s lower house of parliament. They also suggested a potential two-thirds majority for the BJP and allied parties that could enable changes to the country’s constitution.

India’s benchmark stock indices closed at record highs on Monday, with the Nifty 50 jumping 3.3 per cent and the BSE Sensex hitting 3.4 per cent.

The rupee strengthened 0.4 per cent against the dollar, and the yield on India’s 10-year bonds slid to 6.95 per cent from 6.98 per cent on Friday’s close. Prices rise as yields fall.

“It could be a small euphoria for some time,” said Raamdeo Agrawal, co-founder and chair of Motilal Oswal Financial Services in Mumbai, who said the Nifty 50 index might advance 5 to 10 per cent over the next week.

A landslide Modi victory is expected to buoy “capex stocks” such as industrial and infrastructure groups, according to Jefferies analysts.

Shares of companies controlled by Gautam Adani, an infrastructure-focused billionaire with long-standing ties to Modi, hit new highs on Monday. His flagship ports business surged as much as 12.8 per cent.

Reliance Industries, the Mumbai-based petrochemicals-to-telecoms conglomerate run by Asia’s richest man Mukesh Ambani, closed 5.6 per cent up at an all-time high.

India’s election commission is set to announce the official results on Tuesday following the end of a seven-phase, multi-week poll across the world’s most populous nation.

The Nifty 50 was down 1.9 per cent last week amid doubts the BJP would be able to advance on its 2019 result. Foreign investors sold more than $3bn of Indian stocks in May. Many have raised concerns about the country’s richly valued equities, which are among the most expensive in Asia.

“Foreigners have significantly lightened up going into the elections, whereas domestic investors are positioned quite well on the upside,” said Rajat Agarwal, Asia equity strategist at Société Générale. “Foreigners are more focused on the valuations than anything else . . . just from the election outcome we see a limited upside.”

One western diplomat said the polls suggesting a landslide victory were surprising, with the BJP doing better than their country’s internal predictions. The diplomat said the result could pave the way for more “radical” policies under Modi’s third term.

Although exit polls have been wrong in the past, “even an adverse result on June 4 is unlikely to change the nature of the verdict”, said a note by Axis Capital economists, a team led by Neelkanth Mishra, who also sits on Modi’s Economic Advisory Council.

The BJP made its stewardship of the economy an important part of its election campaign, and investors believe Modi will continue to drive development and address business bottlenecks.

Data released on Friday showed Indian GDP grew at a better than expected year-on-year pace of 7.8 per cent in the three months to March. Last week, S&P Global indicated it would upgrade the country’s triple B minus credit rating as a result of a stable policy environment and high infrastructure spending, along with “deepening economic reforms”.

Modi’s victory “gives that continuity and clarity in terms of policy”, said Amar Ambani, executive director and head of institutional equities at YES Securities in Mumbai. “There’s no uncertainty.”

For “a large part” of the week “markets should be on a roll”, he added. “They are at a premium, but we’ve seen in the past that valuations can stay rich for a long time, particularly if liquidity is strong.”

India’s coalition of opposition parties dismissed the exit polls, with some claiming they had been manipulated. They also voiced concern over the ballot counting, which the country’s election commission on Monday played down, confirming that a record 642mn Indians had voted.

Ambani from YES Securities said the polls suggested that Modi’s BJP, dominant in its Hindi-speaking northern heartland, made gains in the country’s more affluent south, traditionally a base for a number of regional opposition parties.

“That’s something the market will take well, because [the BJP] were perceived as a party of the north, west and central, not so much in the east and south.”