The BSE Sensex rose 1.1 per cent to 35,933, set for the biggest advance since 5 April. The gains damped price swings, with the India Volatility Index tumbling 11 per cent.
Indian equities rallied the most in a month as vote-counting from elections in a key southern state showed Prime Minister Narendra Modi’s Bharatiya Janata Party leading over the main opposition.
The S&P BSE Sensex rose 1.1 percent to 35,933.62 as of 10:19 a.m. in Mumbai, set for the biggest advance since 5 April. The gains damped price swings, with the India Volatility Index tumbling 11 percent.
The BJP was leading in 105 seats in the 224-member Karnataka assembly and is seen emerging as the single largest party, as per NDTV 24X7 projections. The Congress party, which has governed the state for the last five years, was ahead in 69 seats. Janata Dal (Secular) — a regional party led by former Prime Minister H.D. Deve Gowda — is ahead in 46 seats in the state, which has a population equivalent to that of France.
While the BJP’s electoral fate remained uncertain — a party needs 112 seats for a majority in the state assembly — a win “will be a clear thumbs up to the Modi government running into the 2019 general elections,” said Abhimanyu Sofat, vice president at India Infoline Ltd. in Mumbai. “A chance of forming a government in Karnataka on their own may add more to today’s positive bias.”
An outright win for BJP will also been seen by investors as a vindication of a slew of policy measures — including a nationwide sales tax and a funding plan for state lenders — that prompted the first sovereign rating upgrade from Moody’s Investors Service in 14 years. An inconclusive verdict, it was feared, could prompt the federal government to take populist measures to shore up public support ahead of next year’s national ballot.
“The hung house was already priced in and only an outright win by either of the two parties will trigger a knee-jerk reaction in the markets,” said Sanjay Sinha, founder of Mumbai-based Citrus Advisors. “Having said that, I don’t think the reaction will last long and the investors will move their focus to earnings.”
The benchmark 10-year yield rose five basis points after data Monday showed retail inflation accelerated more than economists had forecast.