Nifty Screen
The NSE Nifty 50 Index rallied 3.3%, its biggest surge in over three years, while the rupee was the second-best performing currency in Asia on Monday. Image Credit: Bloomberg file

New Delhi: India's stocks surged to a record, while the rupee and sovereign bonds climbed after exit polls signalled an emphatic victory for Prime Minister Narendra Modi's ruling party.

The NSE Nifty 50 Index rallied 3.3 per cent, its biggest surge in over three years, after most polls showed the Bharatiya Janata Party-led alliance securing a comfortable majority in general elections that concluded Saturday. The rupee was the second-best performing currency in Asia on Monday.

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A landslide victory would enable Modi's party to push through policies that are seen as crucial by some investors for boosting India's economic growth, already among the world's fastest. The projected victory along with the recent upgrade of India's ratings outlook by S&P Global Ratings may lead to a reversal of more than $3 billion of withdrawals by global funds from local shares this year.

"Bets are the Sensex will outperform most Asian bourses and global equities as the hat-trick of macro, political and credit positives conspire to fuel fund flows," Vishnu Varathan, chief economist Asia ex-Japan at Mizuho Bank said, referring to the BSE Ltd.'s main equity gauge.

Monday's rally also benefited from other factors including short-covering by foreign investors, faster-than-expected economic growth data that came after market hours Friday, and a rally in the US markets.

"Indian risk assets are in a goldilocks macro environment defined by benign inflation and strong economic growth," said Marko Papic, chief strategist at Clocktower Group LP. He said the revival of domestic capex and an "unusual exuberance" among local investors are among drivers fueling the rally in Indian equities.

India Elections 2024

The exit polls offered relief for investors after low voter turnouts and tight races in some states led to a jump in market volatility amid concern that the BJP might fall short of Modi's 400-seat target.

The NSE's India Volatility Index, a measure of 30-day implied swings based on options prices, nosedived 15 per cent to two-week low. The gauge had more than doubled from a low in late April.

S&P BSE 500 Index, among the most broader gauges in India, jumped 3.3 per cent to an all-time high. The rally was led by utilities companies that included Power Grid Corp. and NTPC Ltd., the country's biggest power generator.

Shares of other state-run companies and infrastructure-linked firms also rallied as a bigger mandate for Modi-led alliance means the government will likely boost capital spending. BSE Ltd.'s gauge of state enterprises surged 7.7 per cent, while an index of capital goods firms added more than 5 per cent.

The stocks of companies controlled by corporates including the Adani Group and billionaire Mukesh Ambani were also among winners. All 10 shares of ports-to-power Adani conglomerate rallied, led by its power unit, which soared as much as 18 per cent. Reliance Industries Ltd., India's most valuable firm, surged 5.6 per cent to a record.

The benchmark 10-year bond pared some gains, as investors look toward the poll results tomorrow and the Reserve Bank of India's rate decision on Friday. Yields fell as much as 4 basis points intraday to 6.94 per cent.