Indian stocks experience largest decline in over four years

• The NSE Nifty 50 share index closed down nearly 6%, marking its steepest fall since the first Covid lockdowns in March 2020.
• Analysts warn that economic policy uncertainty could arise from this situation, with the rupee sliding 0.5% against the US dollar.
• Markets soared on Monday after weekend exit polls suggested a significant victory for the BJP.

Indian stocks plunged sharply as vote counting in the general election indicated that Prime Minister Narendra Modi's party might not secure a majority government. The benchmark NSE Nifty 50 share index closed down nearly 6%, marking its steepest fall since the first Covid lockdowns in March 2020. Early results suggest that Mr. Modi's political party may need to rely on allies to form a coalition government.

Analysts warned that economic policy uncertainty could arise from this situation. The NSE Nifty 50, which includes stocks of various major companies, plunged 8.5% at one point but closed the day down 5.9% at 21,884.5 points.

The S&P BSE Sensex also dropped sharply, closing 5.7% lower at 72,079.05. The rupee slid 0.5% against the US dollar, marking its biggest fall in 16 months. With more than half the votes counted in India's general election, Mr. Modi's Bharatiya Janata Party (BJP) appears unlikely to secure a majority in the 543-member lower house of parliament.

The party may have to rely on allies in the National Democratic Alliance (NDA) to form the next government. Analysts suggest this could lead to some uncertainty over economic policies, including the push for investment, which has been a cornerstone of the Modi government's rule.

"The key question is whether BJP can retain single-party majority," Ken Peng, head of investment strategy, Asia, at Citi Global Wealth, told Reuters.

"If not, then would its coalition be able to deliver economic development, particularly infrastructure?"

Puneet Sharma, chief executive and fund manager at Whitespace Alpha, told Reuters that a new government dependent on coalition partners "may shift its focus" to emphasize welfare "rather than concentrating on reforms during the July budget."

The Hindu nationalist BJP secured majorities in 2014 and 2019. Markets soared on Monday after weekend exit polls suggested Mr. Modi and the BJP would achieve a significant victory. However, it now appears that the BJP will fall short of securing a majority on its own.

Market analyst Fiona Cincotta told the BBC that key Indian stock indexes had been "really battered." She added that individual stocks, including oil and gas firm Reliance Industries and Bank of India, had experienced some "very big falls."

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