Indian stocks hit record high and rupee gains as polls predict Modi victory

(Bloomberg) — Indian stocks hit a record high, while the rupee and sovereign bonds climbed after exit polls signaled an emphatic victory for Prime Minister Narendra Modi’s ruling party.

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The NSE Nifty 50 index rose 3.6% after most polls showed the Bharatiya Janata Party-led alliance securing a comfortable majority in the general elections that concluded on Saturday. The rupee was the second best performing currency in Asia on Monday.

A landslide victory would allow Modi’s party to push through policies seen by some investors as crucial to boosting India’s economic growth, already among the fastest in the world. The projected victory along with the recent upward revision of India’s rating outlook by S&P Global Ratings could trigger a reversal of more than $3 billion in withdrawals from global funds into local stocks this year.

“It is a safe bet that the Sensex will outperform most Asian bourse and global stocks as the trifecta of macroeconomic, political and credit factors conspire to fuel fund flows,” said Vishnu Varathan, chief economist for Asia excluding Japan at Mizuho Bank, referring to the BSE. The main indicator of equity of Ltd.

Monday’s rally is benefiting from short covering by foreign investors, who are closing their bearish bets, analysts said. The Nifty was trading 3% higher at 23,213.55 at 12:52 p.m. local time. Votes will be counted on Tuesday.

“Foreign investors will need to quickly cover their short positions,” said Abhay Agarwal, founder and chief investment officer at Piper Serica Advisors. “Margin calls on short positions could lead the market to exceed 23,000 on Monday – a new high – and almost 23,500 on June 4” if the final number of seats for the ruling alliance is above 350, did he declare.

Read more: India’s stock rally hinges on improvement in Modi’s 303 seat tally

Exit polls offered relief to investors after low voter turnout and close races in some states led to increased market volatility, amid fears that the BJP would fail to achieve Modi’s target of 400 seats.

Investors perceive Modi as a more market-friendly politician than his rivals. Yet, under Modi’s decade-long tenure, the MSCI India index has failed to beat the over 300% rise recorded during the 10-year tenure of his predecessor Manmohan Singh.

The NSE’s India Volatility Index, a measure of 30-day implied swings based on options prices, plunged as much as 22% and was on track to close at its lowest level in more than three weeks. The gauge has more than doubled compared to the low point reached at the end of April.

The S&P BSE 500 index, one of India’s broadest gauges, jumped 3.9%, its biggest intraday gain since February 2021, to hit an all-time high. The rally was led by shares of utility companies, including state-owned Power Grid Corp. and NTPC Ltd., the country’s largest power producer.

Shares of other state-owned and infrastructure-related companies have also rebounded, as the Modi-led alliance’s larger mandate means the government is likely to focus more on economic growth through capital spending. The BSE Ltd. State Enterprise Index. jumped 7.1%, while the index of capital goods companies rose more than 6%.

Shares of corporate-controlled companies including the Adani Group and billionaire Mukesh Ambani were also among the gainers. All 10 stocks in ports-to-power conglomerate Adani rallied, led by its power unit, which rose as much as 18%. Reliance Industries Ltd., India’s most valuable company, jumped 4%.

The benchmark 10-year bond pared some gains in trade as investors look to tomorrow’s poll results and the Reserve Bank of India’s rate decision later this week. Yields fell 4 basis points intraday to 6.94%.

–With help from Subhadip Sircar, Ashutosh Joshi, Malavika Kaur Makol, Chiranjivi Chakraborty and Kartik Goyal.

(Updates with stock index performance under Modi in paragraph after video.)

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