The Nifty index dropped as much as 5.43% to 22,000.60 points while the BSE index fell to a low of 72,337.34 points, down 5.4% on the day. That was the biggest fall since April 2020 and pulled stocks sharply away from records highs struck a day earlier
“If there is a fractured mandate, we think markets should be more nervous. But so long as the current leadership and the prime minister stays, the drop will not be massive,” Umesh Kumar Mehta, chief investment officer at Samco Mutual Fund
Mumbai:Equity investors suffered a massive loss of Rs 31 lakh crore on Tuesday as markets went into a tailspin with the BSE Sensex tumbling nearly 6 per cent as vote counting trends showed the BJP may not have a clear majority in the Lok Sabha polls.
Erasing the record-rally of the previous trade, the 30-share BSE Sensex cracked 4,389.73 points or 5.74 per cent to settle at 72,079.05. During the day, the benchmark tanked 6,234.35 points or 8.15 per cent to hit a nearly five-month low of 70,234.43.
Reversing its Monday’s sharp gains of over 3 per cent, the 30-share BSE Sensex nosedived 4,389.73 points or 5.74 per cent to close at a more than two-month low of 72,079.05. In the day trade, the barometer tanked 6,234.35 points or 8.15 per cent to hit a nearly five-month low level of 70,234.43.
The NSE Nifty tumbled 1,982.45 points or 8.52 per cent to 21,281.45 during the day. Later, it ended at 21,884.50, a sharp decline of 1,379.40 points or 5.93 per cent. Sensex and Nifty had previously declined by around 13 per cent on March 23, 2020 when lockdown was imposed due to the COVID-19 pandemic.
Foreign portfolio investors (FPIs) heavily sold stocks off their portfolio in India on Tuesday, as the broader market witnessed a bloodbath, tracking initial trends in Lok Sabha results.
As per data available on NSE website, foreign portfolio investors sold net stocks worth Rs 12,436 crore. Domestic institutional investors too sold heavily with net sales showing at worth Rs 3,319 crore during the session.
Modi’s National Democratic Alliance (NDA) looked set to secure a majority in early vote counting in the general election, but the opposition alliance (INDIA) led by Rahul Gandhi’s centrist Congress party was also doing better than expected.
Moreover, the BJP was short of a majority of its own, according to TV channels, which could introduce some uncertainty into governance with the overall NDA alliance numbers well short of the landslide predicted in exit polls.
The Nifty index dropped as much as 8.5% to 21,281.45 points while the BSE index, fell to a low of 70,234.43 points, down 8.15% on the day. That was the biggest fall since March 2020 and pulled stocks sharply away from records highs struck a day earlier.
By mid-day both markets had recovered slightly to trade down 5.5% on the day.
“The biggest disappointment for the market is the fact that BJP does not have a majority,” said Dipan Mehta, founder director at Elixir Equities.
“I don’t need to say more, but that opens up a Pandora’s box because all the other players, whether they are NDA or INDIA, they are all quite volatile. So the biggest concern in the market is the fact that BJP did not get the majority on its own”.
However, on Tuesday, shares of government-owned banks, infrastructure and capital goods firms that gained sharply on Monday, saw the largest falls.
“We will see the pull pack as a buying opportunity,” said Gary Tan, portfolio manager at Allspring Global Investments.
“Regardless of the final election count, the India economy will continue to benefit from longer term tailwinds of favourable population demographics and the ongoing geopolitical tensions between China and U.S.”
The lack of clarity on the margin of victory for the NDA saw intraday volatility on the share index rise to its highest level in 26 months.
“The current volatility is due to fresh short positions being built-up,” Aniket Nerkar, founder, AlphaStrat, a firm specialising in trading and investment strategies of derivatives.
A drop in volumes in recent weeks and selling by high frequency traders is also accelerating the drop, he said.
“Markets have dropped as they are now pricing in the change in governance structure,” said Umesh Kumar Mehta, chief investment officer at Samco Mutual Fund.
Key market participants said the markets will continue to be volatile for a good part of this week, and will await clarity on the exact number of seats the BJP and the NDA win to retain power and key portfolio allocations.
Mehta said if the National Democratic Alliance (NDA) is forced to seek support from smaller parties to form government, it may not be able to function as efficiently as it has over the last 10 years.
“If there is a fractured mandate, we think markets should be more nervous. But so long as the current leadership and the prime minister stays, the drop will not be massive,” he added.
The intraday volatility on the share index rose to its highest level in 26 months. Exit polls over the weekend had projected a big win for Modi’s NDA, catapulting markets to all-time highs on Monday as investors were buoyed by expectations of sustained economic growth.
Benchmark indexes have more than tripled in value since Modi became prime minister in May 2014, as of Monday’s close.
However, on Tuesday, shares of government-owned banks, infrastructure and capital goods firms that gained sharply on Monday, saw the largest falls.
Monday’s rally in markets was fed by optimism over the economic outlook under a fresh Modi-led government. The rupee dropped to as low as 83.48 against the dollar versus its previous close of 83.1425. The benchmark 10-year bond yield rose as much 12 basis points to 7.06%.
“The only thing that a lower number than 300 for NDA will do is compel a rethink for the main party on policy approach so far and could mean policies to address K shaped recovery and hence positive for consumption sector,” said Garima Kapoor, economist, Elara Capital.
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 if the Modi alliance secures a decisive mandate.
They bought shares worth a net Rs 68.51 billion ($824.4 million) on Monday, while domestic institutional investors purchased Rs 19.14 billion 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 ($381.61 million) 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.” ($1 = 0.9172 euros)