Indian stocks experienced their most significant drop in nearly four years on Tuesday, driven by preliminary election results indicating that Prime Minister Narendra Modi’s alliance might not secure the expected landslide victory. The NSE Nifty 50 index closed 5.45% lower at 21,995 points, and the S&P BSE Sensex declined by 5.10% to 72,562 points. Both indices had plummeted as much as 8.5% earlier in the day, after reaching new highs on Monday. The volatility index surged to 31.71, its highest level since February 2022, reflecting increased market anxiety.
Mayuresh Joshi, head of equity research India at William O’Neil and Company, commented that markets were previously at an all-time high with significant expectations built on the BJP’s majority. He noted that this optimism would likely dissipate over the coming sessions. Despite the BJP achieving an absolute majority, attention will shift towards upcoming policy announcements.
TV broadcasters reported that the ruling National Democratic Alliance (NDA) secured approximately 293 MPs, while the opposition coalition led by Congress garnered over 220 seats. The NDA requires 272 seats to form a simple majority in the 543-member lower house of parliament. Analysts cautioned that if the BJP wins fewer seats than anticipated, it could hinder the government’s ability to implement ambitious reforms, affecting market sentiment.
Traders highlighted that high-frequency traders’ selling contributed to the market’s decline, triggering margin calls. Rupak De, Senior Technical Analyst at LKP Securities, explained that the market faced a significant correction due to margin calls, as retail investors held heavily leveraged positions. Aniket Nerkar, the founder of Alphastrat, noted that the increase in new short positions added to the market’s volatility.
Looking forward, market participants will closely monitor policy changes and the final election results. Analysts maintain that the fundamental outlook for Indian stocks remains robust, contingent on the continued reform efforts by the BJP-led government. However, investors should brace for substantial volatility in the medium term as the market processes the election results and their implications for future economic policy.
In summary, the sharp decline in Indian stocks reflects the market’s reaction to the preliminary election results, with concerns over the BJP’s potential underperformance influencing sentiment. While reforms are expected to continue, the market’s immediate focus will be on policy announcements and the final election outcomes. The heightened volatility indicates a cautious approach by investors as they navigate the post-election landscape.
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