Indian stock experienced a significant decline following the initial results of the country’s general election, indicating that Prime Minister Narendra Modi’s party may not secure a majority government. The NSE Nifty 50 index dropped nearly 6%, marking its sharpest decline since the Covid lockdowns in March 2020.
Early indications suggest that Modi’s party may need to form a coalition government with allies, leading to potential uncertainty in economic policies. The NSE Nifty 50, consisting of stocks from major companies, initially plummeted 8.5% but closed the day down 5.9% at 21,884.5 points.
The S&P BSE Sensex also saw a significant decrease, ending 5.7% lower at 72,079.05. The rupee depreciated by 0.5% against the US dollar, its largest drop in 16 months. With over half of the votes counted, Modi’s Bharatiya Janata Party (BJP) seems unlikely to secure a majority in the lower house of parliament, potentially requiring coalition partners from the National Democratic Alliance (NDA) to form the government.
Analysts anticipate uncertainty in economic policies, particularly in terms of investment, which has been a key focus of Modi’s government. The question remains whether the BJP can maintain a single-party majority and deliver economic development, especially in infrastructure.
If the new government relies on coalition partners, there may be a shift towards emphasizing welfare over reforms in the upcoming budget. The BJP, known for its Hindu nationalist ideology, won majorities in the 2014 and 2019 elections. As the BJP grapples with the possibility of needing coalition partners to secure a majority, concerns arise about the party’s ability to push through its economic agenda.
The focus on infrastructure development may take a backseat to appeasing potential allies, leading to a potential shift in budget priorities. Despite the challenges ahead, the BJP’s strong showing in the past two elections indicates a resilient base of support that could help navigate the uncertain political landscape.
Despite initial optimism following exit polls, it appears that the BJP may fall short of a majority on its own. Market experts noted a significant downturn in key Indian stock indexes, with notable declines in individual stocks like Reliance Industries and Bank of India.
