Indian financial markets sold off sharply as early vote counting trends suggested Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP)-led alliance is unlikely to win an overwhelming majority as predicted by exit polls over the weekend.
Exit polls in the weekend projected a big win for Modi’s National Democratic Alliance (NDA), leading to markets soaring to all-time highs on Monday as investors were buoyed by expectations of sustained economic growth.
Traders said the markets were selling off on Tuesday as investors awaited more clarity on the total number seats that the NDA would win.
The Nifty index dropped as much as 3.76 percent to 22,389.85 points, while the BSE index fell to a low of 73,659.29 points, down 3.67 percent on the day. Both indexes had touched lifetime highs on Monday.
By 04:25 GMT, both markets had recovered slightly to trade down about 2 percent each.
As of Monday’s close, benchmark indexes had grown by a little more than three times in value since Modi became prime minister in May 2014.
The rupee dropped to as low as 83.4375 against the dollar versus its previous close of 83.1425. The benchmark 10-year bond yield was up 8 basis points at 7.02 percent in early trade.
Monday’s rally in markets was fed by optimism over the economic outlook under a new Modi-led government.
Foreigners, who poured a net $20.7bn into Indian equities last year but had pulled back ahead of the election, are widely expected to turn buyers.
They bought shares worth a net 68.51 billion rupees ($824.4m) on Monday, while domestic institutional investors purchased 19.14 billion rupees in stocks, based on provisional exchange data.
Investors expect the Modi government to continue focusing on turning the country into a manufacturing hub – a project that has courted foreign companies including Apple and Tesla to set up production as they diversify beyond China.
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