India’s S&P BSE Sensex suffered its sharpest fall since the onset of the COVID-19 pandemic in March 2020, as the surprise outcome of the ruling Bharatiya Janata Party (BJP) being poised to fail to win a majority on its own in the just concluded Lok Sabha elections triggered frenzied selling that sent the key equity benchmark tumbling more than 8% intraday on Tuesday.
The Sensex nosedived 4,390 points, or 5.74%, from Monday’s record high to close at 72,079 in the process wiping out the gains of the last four months. All but three of the 30-Sensex stocks ended in the red, with losses led by state-owned NTPC, which slumped 15.5%. State Bank (14.4%), L&T (12.7%), Power Grid (12.4%), Tata Steel (8.87%), IndusInd Bank (9%) and Reliance (7.5%) were among the other heavy losers.
The fall on the NSE Nifty was led by Adani Group and PSU stocks. The Nifty-50 index plunged 1,379.40 points, or 5.93%, to 21,884.50. Adani Ports lost 21.4%, Adani Enterprises (19.7%), ONGC (16.2%), NTPC (14.5%) and Coal India (13.5%).
“Stock markets have been expecting a complete majority for the BJP and a thumping victory for the NDA,” said Siddarth Bhamre, Head Research at Asit C Mehta Investment Interrmediates Ltd. “Exit polls too cemented the expectations. Markets had factored in the best possible outcome and valuations are rich,” he added.
“The market is aware of the challenges associated with a coalition government. Now, with election results not being one-sided, we are witnessing profit booking. We believe this profit booking may continue for some more time,” he added.
“The election results are showing a less than halfway mark for the current BJP government, pointing towards a coalition government,” said Yashovardhan Khemka, senior manager, Research and Analytics, Abans Holdings. “This will lead to dependence on allies in making policy decisions and sharing certain cabinet seats, which will lead to policy paralysis and uncertainty in the government’s functioning,” he added.
“The markets are pricing the risks associated with this scenario and potential impact of the shift towards socialistic policies by the government, this is leading to sell-off in the market,” he observed.
Stating that Tuesday’s market move caught most of the participants on the wrong foot, especially the way the poll outcome had completely undermined the exit polls numbers, Sameet Chavan, Head Research, Technical and Derivatives – Angel One said: “in hindsight, we may call it a much-needed correction as it was overdue; but practically, exit polls have deceived us and raised the bar for the actual outcome.”
“Since the expectations were built higher in the last six odd months, the market reacted dejectedly,” he added.
However, some analysts believe the reform agenda would continue irrespective of the outcome.
Vinit Sambre, Head – Equities, DSP Mutual Fund said, “We would like to believe that the development agenda that spurred the performance of equity is likely to persist, irrespective of the party in power. Some of the reforms implemented are integral to the long-term growth and efficiency of these companies / country and are unlikely to be undone easily.”