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India's stocks decline following surprise election

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2024-06-05

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India's stocks appear to be selling down for a second consecutive day today, following Tuesday’s significant slump in response to the surprising election outcome.

The markets tumbled on Tuesday in volatile trading, as it slowly became apparent that the government of Prime Minister Modi had fallen far short of its bombastic hopes for a crushing third election win.

In fact, as voting continued, the size of the majority shrank to the point where the government will be returned in a minority and will need to form a coalition to govern.

The growing uncertainty during Tuesday’s count saw the major Indian stock market indices slide by between 5% and 6%.

The Nifty 50 Index fell by 6%, and the BSE Sensex dropped by more than 5.7%, as early projections that the outcome would be a huge win for Modi began to change.

By the close of counting on Tuesday, the BJP had fallen far short of retaining its majority, and the Congress-led I.N.D.I.A group had made significant gains.

The vote count suggests that Modi’s BJP is likely to win 239 seats. India’s Parliament has 543 seats, and the party or coalition that wins at least 272 forms the government. The BJP and its allies may end up with 294 seats, but that remains uncertain. There was no mention of the need for a coalition in the BJP’s pre-election hype or from the country’s cheer squad for the prime minister.

The two indexes fell as shares in companies close to the government plummeted sharply during the day. They were down 8% at one stage, and companies in the Adani group were down between 18% to nearly 20% at one stage. The core company, Adani Enterprises, closed down more than 19%, while Adani Ports shed more than 21% in value.

The Adani group is close to Modi and the BJP and was lifted by the pre-poll optimism, which has now vanished. The Nifty rose more than 20% last year, while the Sensex was up nearly 19% in 2023. Monday had seen both indexes hit record highs on the belief that exit polls over the weekend were indicating a big win for the BJP and a third term.

That third term looks certain, but instead of having 353 seats and a huge majority like the BJP had in the previous Parliament, Modi’s party group looks like having around 294 seats.

The opposition Indian National Developmental Inclusive Alliance, or INDIA, led by the Indian National Congress, is expected to win 231 seats — a much better result than previously predicted.

Modi was reported saying in March that he was confident that the NDA would secure over 400 seats.

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