Indian stocks hit a record high, and the rupee rises as opinion polls predict a Modi win

(Bloomberg) — Indian stocks rose to a record high, while the rupee and sovereign bonds rose after opinion polls indicated a certain victory for Prime Minister Narendra Modi’s ruling party.

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The NSE Nifty 50 index rose as much as 3.6%, after most opinion polls showed the BJP-led alliance getting a comfortable majority in the general elections that concluded on Saturday. The rupee was the second best performing currency in Asia on Monday.

A landslide victory would enable Modi’s party to press ahead with policies that some investors see as crucial to boosting economic growth in India, which is already among the world’s fastest economies. The expected victory coupled with the recent upgrade of India’s credit rating outlook by S&P Global Ratings could reverse more than $3 billion in global fund withdrawals from domestic equities this year.

“The bets are that the Sensex will outperform most Asian bourses and global stocks, as the trifecta of macro, political and credit positives conspire to fuel money flows,” said Vishnu Varathan, chief economist for Asia outside Japan at Mizuho Bank, referring to the BSE. Ltd.’s main stock gauge.

Analysts said Monday’s rise benefited from short covering by foreign investors who closed their bearish bets. The Nifty was trading 3% higher at 23,213.55 at 12:52 pm local time. The votes will be counted on Tuesday.

“Foreign investors will need to cover their short positions quickly,” said Abhay Agarwal, founder and chief investment officer at Piper Serica Advisors. “Margin calls on short positions could take the market beyond 23,000 on Monday – a new high – and closer to 23,500 on June 4” if the ruling coalition’s final seat numbers are above 350, he said.

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Read more: Rally in Indian stocks hinges on Modi’s improvement in 303-seat tally

The opinion polls provided relief to investors after low voter turnout and close races in some states led to a jump in market volatility amid fears that the BJP may not achieve Modi’s target of 400 seats.

Investors view Modi as a more market-friendly politician than his rivals. However, under Modi’s decade-long tenure, the MSCI India index failed to overcome the more than 300% surge under his predecessor Manmohan Singh’s 10-year reign.

The NSE’s Indian Volatility Index, a measure of 30-day implied volatility based on options prices, fell as much as 22% and was on track to close at its lowest level in more than three weeks. The gauge has doubled from its low in late April.

The S&P BSE 500 index, among India’s broader gauges, jumped as much as 3.9%, its biggest intraday gain since February 2021, to an all-time high. The rise was led by utility stocks, including state-run Power Grid Corp and NTPC Ltd, the country’s largest power generation company.

Shares of other state-run companies and infrastructure-related companies also rose as the Modi-led coalition’s broader mandate means the government is likely to expand its focus on driving economic growth through capital spending. The BSE Ltd government enterprise index rose 7.1% while the capital goods companies index added more than 6%.

Shares of companies controlled by companies including Adani Group and billionaire Mukesh Ambani were also among the winners. All 10 stocks of Adani Port Power Generation rose, led by its power unit, which rose as much as 18%. Reliance Industries Ltd., India’s most valuable company, rose 4%.

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Benchmark 10-year bonds pared some gains during trading, as investors eye tomorrow’s survey results and the Reserve Bank of India’s interest rate decision later this week. Yields fell as much as 4 basis points on the day to 6.94%.

-With assistance from Subhadeep Sircar, Ashutosh Joshi, Malavika Kaur Makul, Chiranjeevi Chakraborty, and Kartik Goyal.

(Updates on stock index performance under Modi in paragraph after video.)

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