Tuesday’s election results in India’s Nifty 50 index were tougher than expected, causing a drop in the stock market. The Bharatiya Janata Party (BJP), led by Prime Minister Narendra Modi, lost its majority in parliament, forcing Modi to work with smaller parties. In preliminary polls held over the weekend, the BJP was projected to win between 353 and 401 of the 543 seats in parliament, but on Tuesday afternoon it seemed that the party would only have around 240 seats. This surprising result made investors cautious, and India’s Nifty 50 index closed down six percent.
India has been one of the fastest growing economies in the world post-coronavirus pandemic, with Modi aiming to make it the third-largest economy after the US and China. Foreign investments have flowed into India during this period of growth, often at the expense of China, leading many investment experts to hold India in high regard. However, the election results had a significant impact on large companies listed on the Indian stock exchange. Adani Ports and Adani Enterprises experienced over 20 percent drops in their stock prices while financial institutions like Bank of India and ICICI Bank saw their shares fall by 17 and 9 percent respectively.
The uncertainty surrounding the election outcome has made investors jittery about what this means for one of the world’s fastest growing economies. While Modi still has some leeway to govern as he works with smaller parties, there is concern about how much progress can be made without a clear majority. As a result, foreign investment may slow down as investors weigh up whether it is worth investing in an uncertain market environment. The long-term implications of these developments remain to be seen but it is clear that India will face challenges as it navigates its way forward post-election day.
