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Indian markets hit record highs after exit polls predicted a landslide election victory for Prime Minister Narendra Modi, whose third term promises investors a resumption of his infrastructure-led economic drive and market-friendly reforms.
A series of polls released by Indian TV stations and agencies this weekend show Modi’s Bharatiya Janata Party has increased its presence in India’s lower house of parliament. They also suggested a potential two-thirds majority for the BJP and allied parties, which could allow changes to the country’s constitution.
Indian stock indices closed at record highs on Monday, with the Nifty 50 up 3.3 percent and the BSE Sensex up 3.4 percent.
The rupee strengthened 0.4 percent against the dollar, and the yield on India’s 10-year government bond fell to 6.95 percent from 6.98 percent at Friday’s close. Prices rise as yields fall.
“It could be a little bit of euphoria for a while,” said Raamdeo Agrawal, co-founder and chairman of Motilal Oswal Financial Services in Mumbai, who said the Nifty 50 index could rise 5 to 10 percent in the coming week.
A landslide victory for Modi is expected to boost “capex stocks” such as industrial and infrastructure groups, according to Jefferies analysts.
Share prices of companies controlled by Gautam Adani, an infrastructure-focused billionaire with longstanding ties to Modi, hit new highs on Monday. Its main port activities increased by no less than 12.8 percent.
Reliance Industries, the Mumbai-based petrochemicals-to-telecoms conglomerate led by Asia’s richest man Mukesh Ambani, closed 5.6 percent higher at a record high.
India’s Election Commission will announce official results on Tuesday, following the conclusion of a seven-week poll in the world’s most populous country.
The Nifty 50 fell 1.9 percent last week amid doubts the BJP could make progress on its 2019 performance. Foreign investors sold more than $3 billion worth of Indian stocks in May. Many have raised concerns about the country’s richly valued stocks, which are among the most expensive in Asia.
“Foreigners have started the election considerably calmer, while domestic investors are quite well positioned on the upside,” said Rajat Agarwal, Asia equity strategist at Société Générale. “Foreigners are more focused on valuations than anything else. . . We see limited benefit from the election results alone.”
A Western diplomat said the polls suggesting a landslide victory were surprising, with the BJP outperforming their country’s internal predictions. The diplomat said the result could pave the way for more “radical” policies under Modi’s third term.
While exit polls have been wrong in the past, “even a negative result on June 4 is unlikely to change the nature of the verdict,” said a note from economists at Axis Capital, a team led by Neelkanth Mishra, who is also a member is from Modi’s Economic Council. Advisory board.
The BJP has made its stewardship of the economy a key part of its election campaign, and investors believe Modi will continue to boost development and address business bottlenecks.
Data released on Friday showed India’s GDP grew at a better-than-expected 7.8 percent year-on-year 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 “deeper 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 is no uncertainty.”
For “much” of the week, “markets should run well,” he added. “They are more expensive, but we have seen in the past that valuations can remain high for a long time, especially when liquidity is strong.”
India’s coalition of opposition parties has rejected the exit polls, with some claiming they were manipulated. They also raised concerns about the vote counting, which the country’s election commission played down on Monday, confirming that a record 642 million Indians had voted.
YES Securities’ Ambani said the polls suggested Modi’s BJP, dominant in the Hindi-speaking northern heartland, was making gains in the country’s more prosperous south, traditionally a base for some regional opposition parties.
“That is something the market will take well, because [the BJP] were seen as a party of the north, west and center, not so much as a party of the east and south.”