Indian stocks experience major setback over fading hopes for a substantial majority under Modi's rule.
The prominent Indian stock indices, the Sensex and the Nifty 50, each decreased by approximately 6%. This significant decline occurred one day after both indices had hit all-time highs, caused by weekend election poll predictions indicating a landslide victory for Modi during the recently concluded national election.
This marked the worst single-day drop for Indian stocks since 2020.
Although Modi has focused on his ten-year economic achievements during his political tenure, early projections hint at a more promotive role for the opposition Congress party than initially anticipated. To form a government, a political party or a coalition requires at least 272 seats within the 543-seat lower house of the parliament. In the previous general election in 2019, the BJP won 303 seats.
If the predicted results hold true, several pivotal economic reforms might be put on hold to a considerable extent. Yashovardhan Khemka, Senior Manager of Research & Analytics at the Mumbai-based asset management firm Abans Holdings, articulated, "The (preliminary) election results are indicating a less than halfway mark (272 seats) for the current BJP government, indicating a coalition government."
"This will result in dependency on partners for making crucial decisions, leading to policy stagnation and confusion regarding government operations," he added.
As the world's fastest developing major economy, India's targets include a consistent growth rate of at least 6%. To achieve the status of an economic powerhouse, however, some experts believe that a growth rate of 8% or above is necessary.
The Indian economy is in a favorable position to experience expansions in the coming years, potentially catapulting it to the brink of becoming one of the three largest economies worldwide, possibly overtaking Japan and coming in behind the US and China.
In Modi's term as a leader, India's stock exchanges have demonstrated exceptional performance. The National Stock Exchange (NSE) surpassed both the Shenzhen Stock Exchange and the Hong Kong Exchange to assume the position of the world's sixth largest bourse as per figures from the World Federation of Exchanges.
However, many investors have been discouraged by the high price levels of these stocks, and some analysts believe that a market adjustment could serve as a beneficial correction overall. Manish Jain, the head of institutional business at Mirae Asset Capital Markets, proposed, "If valuations become more reasonable from this point, the world's fastest-growing major economy will surely garner increased investments, given that India is a long-term, structural growth story."
Anna Cooban participated in the compilation of this report.
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Despite the predicted challenges for the current BJP government, some investors might still see opportunities in the Indian market for business and investing. Even with potential policy stagnation, India's historical growth rate and favorable economic position could continue to attract investments.
If the opposition Congress party plays a more prominent role in the government, policy changes might cause short-term volatility in the Indian stock market, but long-term investors may still find attractive opportunities for business and investing.
