Indian Stocks Plunge 8% After Big Rally

India's investor panic sentiment has been ignited! The panic index soared by 34%, marking the largest single-day increase since February 2022.

On Tuesday, the Indian stock market recorded its largest decline in four years, as vote counting results indicated that Prime Minister Modi's leadership of the National Democratic Alliance was unlikely to secure an overwhelming victory as predicted by exit polls.

In the early vote counting of Tuesday's Indian Prime Minister election, Modi's party appeared to be on track to secure a majority of votes, but this figure was far below the overwhelming advantage predicted by exit polls, and the enthusiasm for Modi's expected victory in the election has waned.

The Indian Nifty index once plummeted by 8% during the session, reaching a new low since January; the NIFTY Smallcap index once plummeted by 10%, marking the largest drop since March 2020; the SENSEX index plummeted by 8%, marking the largest decline since April 2020, and significantly pulling the Indian stock market down from the historical high reached the day before.

Advertisement

The stock prices of Indian state-owned enterprises plummeted. The stock price of the State Bank of India fell by up to 15%, NTPC, the National Thermal Power Corporation, fell by 15%, Bharat Electronics fell by 20%, Power Grid Corporation of India fell by 15%, the non-banking financial company PFC fell by 20%, and Coal India fell by 15%. The BSE PSU index, which tracks state-owned enterprises, fell by up to 14%.

Umesh Kumar Mehta, Chief Investment Officer of Samco Mutual Fund, said, "The market fell first as it digests the change in leadership structure."

Mehta said that if the National Democratic Alliance is forced to seek the support of smaller parties to form a government, it may not function as effectively as it has over the past decade, "If power is divided, we believe the market should be more nervous. But as long as the current leaders and the Prime Minister continue to stay in office, the decline in the stock market will not be significant."

On Tuesday, India's VIX panic index soared by 34%, marking the largest single-day increase since February 2022.

Over the weekend's exit polls showed that the National Democratic Alliance led by Modi would achieve a significant victory, and on Monday, the Indian stock market soared to a historical high, with investors inspired by expectations of continued economic growth.

Since Modi took office as Prime Minister in May 2014, the value of India's benchmark stock index had more than tripled by Monday's close. However, on Tuesday, the stock prices of Indian state-owned banks, infrastructure, and other enterprises that had risen significantly on Monday experienced a significant decline.The exchange rate of the Indian Rupee against the US Dollar fell to 83.48, compared to the previous day's closing rate of 83.1425. The benchmark yield on India's 10-year government bonds rose by 12 basis points to 7.06%.

Foreign investors poured a net $2.07 billion into Indian equities last year, but pulled out before the elections. It is widely expected that they will turn into buyers if Prime Minister Modi's alliance secures a decisive victory.

According to provisional transaction data, they net bought shares worth 68.51 billion Rupees (approximately $824.4 million) on Monday, while domestic institutional investors bought shares worth 19.14 billion Rupees.

Investors anticipate that the Modi government will continue to focus on turning India into a manufacturing hub, a project that has already attracted foreign companies, including Apple and Tesla, to open new factories in India.

Steve Lawrence, Chief Investment Officer at Balfour Capital, said, "India's focus is on infrastructure." Balfour Capital manages funds amounting to €350 million (approximately $381.61 million). "It's all about infrastructure investment, that is, roads and electricity. With the technology they have, you can see tremendous growth."