Indian stock markets soared to record highs on Monday, propelled by exit polls predicting a substantial victory for incumbent Prime Minister Narendra Modi in the national elections. The benchmark Sensex index and the broader Nifty 50 index both closed at all-time highs, each gaining over 3%.
The surge in the markets follows the conclusion of India's extensive election process over the weekend. Prime Minister Modi, who has governed with a focus on economic growth for the past decade, is anticipated to secure a larger mandate than in the 2019 elections, where his party, the Bharatiya Janata Party (BJP), won 303 seats in parliament.
"I can say with confidence that the people of India have voted in record numbers to reelect the government," Modi stated on X (formerly Twitter) shortly after the polls closed on Saturday.
Market analysts have attributed the positive investor sentiment to exit polls indicating the BJP could secure up to 370 seats, surpassing the already high expectations of 320-350 seats. Manish Chowdhury, head of research at brokerage StoxBox, noted, "With the exit polls pointing towards 370 seats mark and ahead of street expectations of 320-350 seats, markets have reacted positively. We expect to see higher flows both from domestic as well as foreign investors going ahead."
This optimism is further fueled by India's robust economic performance. The country reported over 8% growth for the fiscal year ending in March, solidifying its status as the world's fastest-growing major economy. Analysts project that sustained growth of 6% or more annually is achievable in the coming years, though India aims for higher growth rates to become an economic superpower.
Investors are hopeful that a decisive Modi victory will enable the government to implement significant land and labor reforms necessary for the next phase of economic expansion. Sustained growth could elevate India to the world's third-largest economy, trailing only the United States and China, by 2027.
Shares of the Adani Group, a conglomerate with interests from ports to power, also saw a significant surge on Monday. Adani Enterprises, the group's flagship firm, rose over 7%, while Adani Power increased by 16%. Founder Gautam Adani recently regained his position as Asia's richest man, surpassing Mukesh Ambani of Reliance Industries.
Adani's fortunes have rebounded impressively following a severe crisis last year when Hindenburg Research, a U.S. short-seller, accused the group of decades-long fraud. Adani denounced the report as "baseless" and "malicious," and his companies have since regained investor confidence, with some shares reaching record highs.
During Modi's tenure, the Indian stock markets have performed robustly. The combined market value of companies listed on India's exchanges surpassed $4 trillion late last year. Earlier this year, the National Stock Exchange of India overtook both the Shenzhen Stock Exchange and the Hong Kong Exchange to become the world's sixth-largest bourse, according to data from the World Federation of Exchanges.
In addition to the stock market rally, the Indian rupee and sovereign bonds also gained strength. The NSE Nifty 50 Index experienced its largest surge in over three years, rising by 3.3%, while the rupee became Asia's second-best performing currency on Monday.
Vishnu Varathan, chief economist Asia ex-Japan at Mizuho Bank, commented on the market dynamics, "Bets are the Sensex will outperform most Asian bourses and global equities as the hat-trick of macro, political and credit positives conspire to fuel fund flows."
Monday's rally was supported by multiple factors, including short-covering by foreign investors, strong economic growth data released after market hours on Friday, and a rally in U.S. markets. Marko Papic, chief strategist at Clocktower Group LP, remarked, "Indian risk assets are in a goldilocks macro environment defined by benign inflation and strong economic growth."
Investors view Modi as a market-friendly politician, which has bolstered confidence despite some underperformance relative to his predecessor Manmohan Singh. Under Singh's decade-long tenure, the MSCI India Index achieved over a 300% rally, a benchmark Modi's administration has yet to surpass.
The projected election victory has eased investor concerns about market volatility, driven by low voter turnout and tight races in certain states. The NSE's India Volatility Index, a measure of 30-day implied swings based on options prices, dropped 15% to a two-week low.
The rally extended across various sectors, with utilities companies, state-run enterprises, and infrastructure-linked firms leading the gains. Notably, stocks of companies controlled by conglomerates such as the Adani Group and Mukesh Ambani's Reliance Industries also experienced significant upsurges.
