Indian equities jumped, with the benchmark S&P BSE Sensex hitting the 40,000 milestone, as leads show Prime Minister Narendra Modi is headed to win a second term. The rupee and sovereign bonds also rose.
The Sensex surged 2.4% as of 10:43 a.m. in Mumbai, while the NSE Nifty 50 Index rallied by the same magnitude. The rupee strengthened 0.2% to 69.5175 per dollar, while the yield on benchmark 2029 bonds slid six basis points to 7.2%, the lowest since last April.
Modi’s commanding lead in early counting has put to rest concerns about the prospects of a coalition of opposition parties forming the government when investors are already wrestling with slowing economic activity and the U.S.-China trade tensions. Optimism that Modi will boost reforms in the second term will likely attract more foreign inflows to what is already Asia’s top destination for overseas cash this year.
Also read: Early Lok Sabha trends show BJP-led NDA leading in 274 seats, past majority mark
“Foreign investors have been positioning themselves for a Modi victory,” said David Cornell, London-based chief investment officer at Ocean Dial Asset Management. “India is heavily under invested given the size of the economy and the opportunity it offers. Any indication that Modi will use his re-election to bolster his reformist agenda will trigger more inflows.”
Foreign funds have purchased $9.5 billion of local shares this year, the most after China, while rupee bonds have seen outflows of $447 million.
“If this trend continues, everyone should be happy to have a stable government in place as the economy demands stability,” said Sushant Kumar, an equity fund manager at Raay Global Investments Pvt. in Mumbai.
The ruling BJP has extended its lead to more than 282 seats — easily winning the 272 seats needed to form government — while Congress is ahead in 51 seats, official election commission results show as of 10:16 am local time.
Also read: BJP on course to better 2014 Lok Sabha tally, surges past majority mark
“The rupee had already responded positively to the exit polls earlier in the week, and confirmation of the results should see further strength on the back of increased foreign inflows,” said Khoon Goh, head of research at Australia & New Zealand Banking Group Ltd. in Singapore. “Election uncertainty is now out of the way.”
The Numbers
- All the 19 sector indexes rallied, led by a gauge of engineering and construction stocks.
- The NSE Volatility Index slumped 25% after a two-day gain. – Bloomberg