Indian stocks, bonds and the rupee are poised to climb on Monday after exit polls indicated a resounding victory for Prime Minister Narendra Modi's party in general elections that concluded Saturday.
The polls suggest the Bharatiya Janata Party-led alliance will clinch substantially more seats than the 272 required for a majority in the 543-seat lower house of parliament, with most pollsters predicting the group will win between 350 and 400 seats in total. In 2019, the alliance won 352. The votes will be counted on Tuesday.
The predictions are likely to calm investors rattled by recent stock market volatility, driven by concerns that the BJP might fall well short of Modi's ambitious 400-seat target due to low voter turnouts and tight races in several states. A landslide win would enable the party to push through policies that are seen as crucial for boosting India's economic growth, which is already among the world's fastest.
"There was some skepticism, with volatility picking up as some people were getting jittery on the election outcome. Now it will settle, "this is a resounding vote for continuity," said Vinit Sambre, who oversees about $12 billion as head of equities at DSP Mutual Fund in Mumbai. "Markets could react positively on Monday."
While the final results might differ from the exit polls, the strength of the projected victory is expected to benefit risk assets. Indian equities reached a record in May, while the bond markets are near their highest levels in about a year.
"The suggested size of the majority would allow the government to continue unabated with its current policy program," said Gary Dugan, chief investment officer at Dalma Capital Management Ltd. in Dubai. "We could imagine a 3-5% return from the market on Monday."
Should the results on June 4 align with the exit polls, analysts expect the NSE Nifty 50 Index to reach a new record. The main gauge slid nearly 2% to 22,531 last week as foreign investors treaded cautiously ahead of the election outcome.
"Foreign investors will need to cover short positions quickly," said Abhay Agarwal, founder and chief investment officer at Piper Serica Advisors. "Margin calls on short positions may lead to the market spiking beyond 23,000 on Monday "- a new high "- and close to 23,500 on June 4th" if the numbers for the ruling alliance are above 350, he said.
Shares of state-owned companies, infrastructure-linked firms and those of some corporates including the Adani Group and Mukesh Ambani's conglomerate may be in focus Monday. About 90% of the 54 stocks that CLSA referred to as 'Modi stocks' in its May 29 note have beaten the Nifty index in the past six months.
These companies are perceived to benefit from the BJP's pro-growth policies and their outpeformance may extend in case of a strong election result, the note said. Engineering giant Larsen & Toubro Ltd., and power generators NTPC Ltd. and NHPC Ltd. are among CLSA's preferred stocks.
Sentiment will also be buoyed by faster-than-expected economic growth data, published after market hours on Friday.
India's gross domestic product grew more than 8% in the fiscal year that ended in March, cementing the nation's position as the world's fastest-growing major economy.
S&P Global Ratings recently indicated a potential credit rating upgrade for India, boosting financial markets ahead of the country's inclusion in JPMorgan Chase & Co.'s emerging market bond index later in June.
"For the bond market, many things have been positive of late," said Saurabh Bhatia, head of macro strategy and fixed income at Sapient Finserv, adding that the election outcome may give further fillip. "A strong government leads to more fiscal discipline and macro stability. Bonds will rejoice."
