Sensex gains 1,422 points in single day, markets want Narendra Modi back; exit polls give investors just the right hint

Indian stock markets are booming since major exit polls predicted a clear majority for Narendra Modi-led BJP/NDA in 2019 Parliament elections.

On Monday, the benchmark index Sensex closed 1,421.90 points, or 3.75 percent higher at 39,352.67.  On 18 May 2009, the biggest-ever single-day gain was 2,100 points.

On Monday, the Indian rupee surged above 70-mark gaining over 86 paise.

Why do the prospects of Modi’s return to power thrill investors? Well, the answer is simple. The stock market loves Modi over a Congress-led weak coalition government as a business-friendly leader that can push the reform juggernaut ahead. That image hasn’t changed since 2014. The so-called Modi-wave hasn’t faded, at least going by the exit polls outcome.

 Sensex gains 1,422 points in single day, markets want Narendra Modi back; exit polls give investors just the right hint

Representative image. Reuters

In fact, Modi has been never shy to be seen with businessmen, unlike his principal political opponent Rahul Gandhi. The Congress chief has repeatedly attacked Modi for favouring the corporates, particularly in the context of large corporate loan write-offs and made this a part of his central agenda in the campaign.

Two days prior to the exit polls when this writer spoke to senior professionals in the financial services sector about their preference, the answer was unanimous and largely sounded like this. ‘Well, of the two, Modi is a better choice. At least he brought back the activity back on the reform front.” They believed Modi will score big in this election despite the myriad attacks against him by the Opposition parties and said the trend will be clear on 19 May evening. And it did. Most exit polls predicted a thumping victory for Modi with the tally for NDA being predicted between 277-352.

Why the market loves Narendra Modi

The following are the major reasons for the markets surging post-exit polls on Monday when they opened for trade:

Primarily, it is a hope for the continuity of policy. The stock market is worried about sudden changes in the policy course of the government. It cause panic among large foreign institutional investors (FIIs). This concern is addressed if Modi remains in power. From the markets’ point of view, policy continuity is critical particularly in relation to the tax policies.

Second, both Insolvency and Bankruptcy Code (IBC) and Goods and Services Tax (GST) is seen to be the big wins of the Modi government's five-year rule. Though demonetisation has hurt the informal sector, markets seem to have forgiven Modi’s economic misadventures and find him as a pro-reform reader.

Third, markets hate a weak government that is bound by coalition pressure. That has been traditionally so and a Congress win would probably bring back coalition politics. The stock markets think Modi is probably better positioned than Gandhi at this point of the economic cycle where there aren’t much positive news both in India and abroad. The Indian economy is now facing a serious demand slump.

Fourth, what dominated the whole Congress-campaign was the anti-Modi rhetoric. The Congress-led Opposition did not have a better economic plan or a reform roadmap to offer to the markets. The clear shift to competitive populism with schemes like NYAY was seen as a fiscal threat on the already shaky balance sheet of the government.

Over the past few weeks, the markets were undecided which way the wind will blow and now they know with the result of the exit polls. If the trajectory of exit polls turns out to be true, and don’t prove to be way off mark on 23 May, the upside wave will likely continue in the near-term.

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Updated Date: May 20, 2019 17:27:53 IST