Investors await clear signals from next Indian government as Sensex and rupee see drops on election results. Image Credit: Reuters

Dubai: The Indian stock markets - and the rupee – could be in for renewed volatility in the next few days as the country gets ready for a new Narendra Modi led NDA government. The election count on Tuesday (June 4) confirmed that the BJP helmed alliance will have a simple majority of 294 seats in the 543-seat Indian Parliament.

But the financial markets and investors were expecting the NDA seat count to be around or even above the 350 mark. It’s when the numbers came up short that the Sensex, India’s key stock market index, and the rupee turned volatile all through yesterday. The Sensex was at one point down nearly 5,000 points before recovering to close 4,390 points lower.

The rupee on the other hand is trading at its lowest point ever, of 22.73 to the dirham.

“The markets and investors would still have been reassured if the NDA’s final tally had been 300 seats or slightly over,’ said Krishnan Ramachandran, CEO of Dubai-based Barjeel Securities. “Since that did not happen, the markets could be in for a further round of volatility before a correction happens.

“if the new government can manage investor expectations fast enough, sentiments can still change.”

- Krishnan Ramachandran of Barjeel Securities

It’s been a volatile ride for the Sensex in recent days. In the days leading to June 1, the index slipped on investor fears that the elections would not provide a decisive mandate for a BJP government. Then, on June 1, the exit polls came out and with a unanimous verdict – that the NDA would return to power with a super-sized majority with around 350 seats. Even more.

On June 4, when the vote count started, it soon became clear that things were not going as per the script provided by the exit polls. BJP lost seats in key states where it had won handsomely in 2019.

"The Indian rupee, which strengthened on Monday (June 3), is now trading near its all-time low against the dirham,” said Sanjeev Dutta, CEO of UAE-India Business Council - UAE Chapter. “It highlights the sensitivity of the (financial) markets to political developments.

The UIBC continues to monitor these trends closely, understanding their implications for bilateral trade and investment but remain confident in the long-term resilience of the Indian economy.

- Sanjeev Dutta of UIBC - UAE Chapter

Policy continuation

The next big cue for the Indian financial markets will come with the unveiling of the 2024-25 budget, which will be done before July 15. (There was an interim budget presented in February.)

Anuj Puri is Chairman of Anarock Group, the real estate consultancy, and what he is looking to see is policy continuation with the new government in place. “The early trends and the exit polls for the recently concluded elections for the 18th Lok Sabha elections anticipated continuity of ongoing policies by the incumbent government,” said Puri. “The current government had, over the last two terms, made significant strides on the policy front, and in the development of the nation.

The economy grew with major investments into developing the country. The real estate industry always looks towards a stable government that will ensure no interruptions in the ongoing schemes and investments into infrastructure development.

- Anuj Puri of Anarock Group

In the coming days, the Indian markets will be hoping to see that happen.