Mumbai: Indian equities soared to new closing highs, the rupee firmed up and bond yields fell to two-year lows on Monday as investors cheered the likelihood of the Bharatiya Janata Party (BJP) returning to power with a strong majority, based on exit poll numbers. The benchmark indices jumped over 3% each, the biggest single-day gain in four years, while the Volatility Index (VIX) – the market’s fear gauge – plunged 14.9% a day before votes are counted Tuesday.
Whether the bullish momentum continues over the next few trading sessions will depend on how many seats the BJP-led coalition gets. Investors should brace for a brief reversal if the results aren’t aligned with exit poll predictions, analysts said. “Given that the exit poll trends translate into results on Tuesday, a continuation of the relief rally can happen, with the market (Nifty) touching 23,500 briefly before profit booking takes over,” said Venugopal Garre, managing director, Bernstein, in a note to clients. “A greater margin of victory – with seats going into the 380-390 or above range – can increase the magnitude but not the duration of the rally.”
Nifty jumped 3.25%, or 733.2 points, to close at 23,263.90, after hitting a lifetime high of 23,338.70. Sensex gained 3.39%, or 2,500 points, to close at 76,468.78, having hit a high of 76,738.89 during trade.
Both indices witnessed the biggest rally in a day since February 2021.
On Monday, India’s market cap soared ₹13.78 lakh crore to ₹425.92 lakh crore.
Foreign portfolio investors bought shares worth a net ₹6,851 crore on Monday as many of them squared off a portion of their bearish derivative bets built up ahead of the exit polls.
The liquidation of bearish positions by overseas investors to almost half on Monday fuelled the rally, said analysts.
FPIs, who held record bearish bets of $2.8 billion in index futures on Friday, cut them to $1.5 billion on Monday, said Nuvama Alternative & Quantitative Research’s head Abhilash Pagaria.
“If the exit poll predictions hold, then further gains are anticipated on account of short covering action by foreign investors,” said Avendus Capital Alternate Strategies’ CEO Andrew Holland, who expects the indices to rally another 5%. “While lower-than-expected numbers will dampen the enthusiasm, no major profit booking is expected.”
For investors, a BJP-led National Democratic Alliance (NDA) win means continuity in existing economic policies and a renewed push for market-friendly measures such as land and labour reforms. Market participants are pinning hopes on the new government to push policies to strengthen India’s position as a manufacturing hub.
The rupee on Monday strengthened 0.38% against the dollar to close at 83.14. The yield on the 10-year benchmark government ended at 6.94%, its lowest closing since April 7, 2022, LSEG data showed. The bond had closed at 6.9860% on Friday. Bond yields and prices move in opposite directions.
In equities, investors have been nervous about the BJP’s performance in the elections with the Sensex and Nifty declining nearly 2% last week and the VIX surging 83% in the past month to a two-year high of 24.6 on Friday. The rising VIX showed traders saw risks to the markets in the near term.
The exit polls pointing to BJP’s big win have eased the uncertainty.
“If the mandate, post the election outcome is in line with the exit polls, then markets will have some solace and move upwards,” said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services. “If it is lower, then there is some profit booking likely, but no major corrections are likely. Nifty can see further upside of 10% in the next six months. However, the budget would be a key trigger that the markets would look out for.”
The broader market also ended firm with the Mid-cap 150 index and Small-cap 250 index advancing 3.01% and 2.06%, respectively, on Monday. Out of the 4,115 stocks traded on the BSE, 2,346 rose, while 1,615 fell.
Elsewhere in Asia, Hong Kong gained 1.74%, Indonesia gained 0.94%, Taiwan ended 1.71% higher, China declined 0.27% and South Korea ended 1.79% higher.
