Sensex, Nifty tank as Lok Sabha vote counting gets under way

The 30-share BSE Sensex dropped 1,715.78 points to 74,753 in early trade. The NSE Nifty tumbled 539.1 points to 22,724.80.

Indian stocks slid on Tuesday, reversing gains that had pushed key indexes to record highs, and the rupee and bonds weakened as initial leads signaled a narrow victory for Prime Minister Narendra Modi-led Bharatiya Janata Party.

The NSE Nifty 50 Index tumbled as much as 3.8% in Mumbai, the biggest intra-day drop in more than two years, as counting began in the weekslong election that concluded Saturday. The rupee fell by the most in 10 months against the dollar after rallying in the previous session. 

Volatility spiked as the Election Commission of India counts votes, with a gauge of 30-day ahead implied swings on the NSE jumped as much as 17%. Broad trends will only emerge within the next few hours. An index of so-called Modi stocks, as termed by CLSA, slumped almost 5% with Adani Group’s flagship unit Adani Enterprises Ltd. among the top contributers. 

“The market is priced for 400 seats for the BJP-led alliance and it seems that is definitely not coming now,” said Amit Kumar Gupta, chief investment officer at Fintrekk Capital. “Investors are a little nervous and that will stay so for the next couple of hours till leads are firmly established.”

Opposition leaders had dismissed the polls, holding onto their predictions that their alliance of more than 20 groups, led by the Indian National Congress, would win 295 seats. The polls had predicted the BJP-led alliance would win over 350 of the 543 seats in the lower house of parliament.

Analysts said that financial markets had already priced in Modi’s re-election and that Monday’s rally was overdone. The Nifty posted its biggest surge in over three years, while the rupee gained the most this year. Local stocks trade at a one-year forward price-to-earnings multiples of more than a standard deviation above its 10-year average, data compiled by Bloomberg showed.

“Indian markets were trading at 140% market cap-to-GDP,” said Sameer Kalra, founder of Target Investing Pvt., refering to the expensive equity valuations. “If there is some uncertainty in future policy moves there can be a major correction.”