Rupee Image Credit: IANS

Mumbai: Indian stocks rallied the most in more than three years and the rupee and sovereign bonds climbed after exit polls signalled Prime Minister Narendra Modi’s ruling coalition is poised to retain power.

The S&P BSE Sensex climbed as much as 2.9 per cent, the most since March 2016, to come within 0.6 per cent of its April peak as exit polls predicted a comfortable majority for the Bharatiya Janata Party and its allies. A gauge of equity volatility collapsed, the rupee rose the most since December and the yield on benchmark 2029 bonds slid eight basis points.

The predictions have comforted investors concerned by Modi’s ability to repeat his landslide 2014 win amid a resurgent opposition, farm distress and a job crisis. While a second term depends on the vote-counting day delivering a verdict similar to exit polls, the strength of the projected victory is reassuring, according to BNP Paribas Asset Management.

“The markets should see continuity and potential for reforms and foreigners are likely to be net buyers,” said Jean-Charles Sambor, deputy head of emerging-market debt at the money manager. “We see India as being under-owned.”

Sentiment has been fragile as overseas funds have pulled more than $650 million combined from local shares and bonds this month amid the political uncertainty and the risk off mood triggered by the US-China trade standoff. The rupee, Asia’s top performer in March, has slid 1.6 per cent this quarter, while the Sensex halted a nine-session losing streak last Tuesday before capping the best week since March.

“Exit poll results have put to rest any concerns about the present government not coming back,” said Paresh Nayar, Mumbai-based head of currency and money markets at FirstRand Ltd.

“Financial markets are going to cheer these exit poll results.”