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Indian markets reached record highs on Monday, buoyed by exit polls that forecast a landslide election victory for Prime Minister Narendra Modi. The polls, released over the weekend by Indian TV stations and agencies, showed Modi's Bharatiya Janata party (BJP) increasing its presence in India's lower house of parliament.
The Nifty 50 index jumped 3.6 per cent and the BSE Sensex hit 3.8 per cent at the open before paring back some gains. The rupee strengthened 0.6 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.
Investors are betting that a Modi victory will lead to a resumption of his infrastructure-led economic drive and market-friendly reforms. 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.
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.
Foreign investors have been cautious in the lead-up to the election, but domestic investors are positioned quite well on the 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.
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."
Source: Indian markets hit record highs as exit polls forecast Modi victory