By Bharath Rajeswaran and Ankur Banerjee
MUMBAI/SINGAPORE (Reuters) -Indian financial markets sold off sharply on Tuesday morning, as early vote counting trends suggested Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP)-led alliance is unlikely to win a decisive majority as predicted by the exit polls over the weekend.
“The numbers for NDA are subdued and below expectations. So we are witnessing profit booking as investors are nervous. We need to wait one more hour for greater clarity,” said Kranthi Bathini, director of equity strategy at Mumbai-based Wealthmills Securities.
“But we can see profit booking continuing and extending if these trends continue,” he said.
Exit polls in the weekend projected a big win for Modi’s National Democratic Alliance (NDA), leading to markets soaring to all-time highs on Monday as investors were buoyed by expectations of sustained economic growth.
Traders said the markets were selling off on Tuesday as investors awaited more clarity on the total number seats that the NDA would win.
The Nifty index dropped as much as 2.3% to 22,724.80 points while the BSE index fell to a low of 2.4% at 74,753.00 points. Both indexes had touched lifetime highs on Monday.
The benchmark indexes have grown by a little more than three times in value since Modi became prime minister in May 2014.
In the spot market, rupee dropped to 83.41 against the dollar versus its previous close of 83.1425. The benchmark 10-year bond yield was up 8 basis points at 7.02% in early trade.
Monday’s rally in markets was fed by optimism over the economic outlook under a fresh Modi-led government.
“Markets have rallied around the expected election results and it is very hard not to be an optimist on India,” said Vivek Bhutoria, portfolio manager for emerging market equities at Federated Hermes.
“Policies are being put in place to attract investments and the realignment of the global supply chain is going to benefit India over time. We are already starting to see some benefits in terms of electronics and chemical exports.”
Foreigners, who poured a net $20.7 billion into Indian equities last year but had pulled back ahead of the election, are widely expected to turn buyers.
They bought shares worth a net 68.51 billion rupees ($824.4 million) on Monday, while domestic institutional investors purchased 19.14 billion rupees in stocks, based on provisional exchange data.
Investors expect the Modi government to continue focusing on turning the country into a manufacturing hub – a project that has courted foreign companies including Apple and Tesla to set up production as they diversify beyond China.
“India is all about infrastructure,” said Steve Lawrence, chief investment officer at Balfour Capital, who manages 350 million euros across different funds.
“It’s all about infrastructure investments; roads and electricity. With the type of technology that they have, you could see a tremendous amount of growth.”
(Reporting by Ankur Banerjee in Singapore; Editing by Michael Perry and Shri Navaratnam)
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