The Indian stock market experienced its worst session in four years as Prime Minister Narendra Modi’s BJP failed to get a clear verdict.
Nifty 50 and Sensex tumble in election jitters
Indian equities witnessed their steepest decline in almost four years on Tuesday. This plunge came as initial election results indicated that Prime Minister Narendra Modi’s alliance might not secure the landslide victory anticipated. The NSE Nifty 50 settled 5.45% lower at 21,995 points, while the S&P BSE Sensex closed down 5.10% at 72,562 points. Notably, both indexes had plunged as much as 8.5% earlier after scaling new highs on Monday.
Market jitters rise sharply
Market volatility spiked, with the volatility index surging to its highest level since February 2022 (31.71). This signifies heightened investor anxiety. “Markets were riding all-time highs fueled by strong expectations of a BJP majority,” explained Mayuresh Joshi, head of equity research India at William O’Neil and Company. “This euphoria will unwind in the coming sessions.” Joshi further stated that while reforms would likely continue under a BJP majority, the focus would shift towards upcoming policy announcements.
Election results impact investor sentiment
As per TV broadcasters, the ruling National Democratic Alliance (NDA) has secured around 293 seats, while the opposition alliance led by Congress has crossed 220 seats. To form a simple majority in the 543-member lower house, the NDA needs 272 seats. Analysts cautioned that the BJP securing fewer seats than projected could limit the government’s ability to implement ambitious reforms, impacting market sentiment.
High-frequency traders and margin calls fuel downturn
Traders attributed the market’s accelerated decline to selling by high-frequency traders, triggering margin calls. “The market is undergoing a substantial correction due to margin calls, as retail investors held heavily leveraged positions,” said Rupak De, Senior Technical Analyst at LKP Securities. Aniket Nerkar, creator of Alphastrat, observed that the build-up of new short positions further amplified market volatility.
Looking ahead: Uncertainty and volatility
Going forward, market participants will be closely monitoring policy developments and the final election results. Analysts believe that the long-term outlook for Indian equities remains positive, contingent on the continuation of reform measures by the BJP-led government. However, in the near future, investors should brace for significant volatility as the market absorbs the election results and their implications for future economic policies.