Poll Jitters Hit Indian Stocks as Nifty Breaks Crucial Support

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Indian stocks suffered their worst day in about four months as the nervousness over the outcome of the ongoing general elections persisted.

The benchmark NSE Nifty 50 Index tumbled 1.6%, the most since Jan. 17, to fall past its 100-day moving average. In October, when the gauge closed below the crucial support, it went on to extend its fall over the next few sessions.

Speculation regarding the impact of the low voter turnout on the prospects for Prime Minister Narendra Modi’s bid for a third term in power has been the main driver of investor sentiment in recent sessions. There’s concern that a weaker-than-expected majority may hamper his ability to push through reforms such as revamping infrastructure and boosting manufacturing sector.

“We’re currently neutral on the market because maybe the expectations went much ahead of what the Bharatiya Janata Party can deliver,” said Homin Lee, senior macro strategist at Lombard Odier. “Looks like the party is toning down expectations for seats gain, so that might be the reason why market is slightly fragile in the past few days.”

Read: Fear Gauge for India Jumps as Stock Traders Mull Modi Win Margin

To be sure, the Hindu nationalist party and its alliance is still widely expected to win a majority of the seats, according to several opinion polls. Modi’s party secured victory in 303 seats in the previous elections five years ago, winning absolute majority. He has vowed to win more than 400 seats in the ongoing polls in order to meet his plans for making India a developed nation by 2047.

The South Asian nation has voted on more than half of the 543 seats up for grabs in the lower house of the parliament in a seven phase polling that will conclude on June 1. Votes will be counted on June 4.

The selloff has led local shares to lag behind the regional markets, with the MSCI India set to trail a similar gauge for Asian stocks for the first time in four years. Meanwhile, foreign investors have pulled about $2 billion since the start of April amid strong gains in markets including China and Hong Kong.

Read more: India Election Campaign Turns Bitter as Modi Casts His Vote

Investor anxiety is reflected in the so-called fear gauge, which measures likely market swings over the next 30 days. The NSE’s India Volatility Index extended its rising streak to a record 11th day on Thursday, jumping as much as 88% from a low in April. In 2019, the index climbed over 20% in the month leading to the counting of votes.

“We reckon that 400+ seats seem unlikely” for the BJP-led alliance, Phillipcapital India Pvt. analysts Anjali Verma and Navaneeth Vijayan wrote in a note. “The turnout so far is a tad lower and while this could affect the outcome for a few constituencies, it is unlikely to majorly dent the widely expected outcome of BJP returning to power.”

--With assistance from Joy Lee.

(Updates throughout.)

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