Indian stock exchange plummets as Modi disappoints at elections

The Indian stock exchange is experiencing a steep nosedive as Narendra Modi’s party is set to win the elections with a smaller majority than expected. India’s elections, the biggest in the world, reached their final phase after a 3-month long ballot.

Narendra Modi is up for his third term as India’s President after a 10-year tenure. Under his presidency, India became the world’s fifth richest country in terms of total GDP. Today, India is the fastest-growing major economy, with GDP growth in 2023 reaching a whopping 8.2%.

Modi leads the Bharatiya Janata Party (BJP), widely expected to win the majority of seats on its own. The BJP is however part of the wider National Democratic Alliance (NDA) made of a total of 40 parties. In the current legislature, the NDA owns 352 out of 543 seats in India’s lower chamber, the Lok Sabha. The BJP controls 293 of those seats.

In the 2024 elections, Modi’s alliance was expected to win with a wide majority again. Polls showed that the NDA would win over 350 seats, with Modi himself predicting over 400.

However, the reality was much different. The first results as of 16:30 GMT+2 show the BJP failing to reach a majority on its own, winning 240 seats out of the 272 needed. The NDA overall will likely get the majority at 290 seats, but the result will be much worse than expected.

Modi on the ropes

Temporary exit polls show the opposition Indian National Developmental Inclusive Alliance (INDIA), a 20-party coalition led by Rahul Gandhi, will gain over 180 seats. This will make structural reforms much harder for Modi and could hamper his program to make India the new China.

The INDIA appeals to those Indian voters left out of the country’s meteoric economic growth. India is one of the least equal countries in the world, with a GDP per capita of a mere $2,410.89 despite being the world’s fifth-largest economy. By comparison, the UK is one step behind India in terms of total economic size but has a GDP per capita of $46,125.26.

However, INDIA’s result at the ballots “opens up a Pandora’s box because all the other players, whether they are NDA or INDIA, they are all quite volatile,” said Dipan Mehta, founder director at Elixir Equities. “So the biggest concern in the market is the fact that BJP did not get the majority on its own".

Following the exit polls, the NIFTY 50, an index following the 50 largest Indian publicly traded companies, fell by 5.93% in intraday trading. The fall reached its highest point at -8.5%, the largest plunge since 2020.

"The current volatility is due to fresh short positions being built up," said Aniket Nerkar, founder of the trading firm AlphaStrat.