Indian stock market plummeted on Tuesday, June 4, with the stock, bond, and currency markets all falling. Preliminary election results show that the ruling party led by Indian Prime Minister Narendra Modi is unlikely to win a majority in the national elections that ended over the weekend.

(Screenshot Source: Bloomberg)

The Indian NSE Nifty 50 index and the Indian SENSEX index both fell by 7%, marking the largest single-day drop in over four years. Early tallying showed that Modi was running for reelection and had a slight lead, but his advantage was not as great as exit polls predicted.

(Screenshot Source: Bloomberg)

Both the Indian bond and currency markets fell. The Indian rupee against the US dollar fell by 0.5%, marking its largest drop in 10 months.

India's 10-year treasury notes yield rose by 11 basis points to 7.06%, marking its largest increase since October last year.

Prior to the tallying day, Indian pollsters generally predicted that the National Democratic Alliance (NDA), led by the Bharatiya Janata Party (BJP), would win the most seats in parliament and Modi would be re-elected. Such expectations led to a sharp rise in India's stock market on Monday.

However, as the tallying data was progressively released, it emerged that the BJP and its coalition of parties, led by Modi, may have won fewer seats than initially expected, and only by a narrow margin. This development has caused investors to worry and to withdraw their profits, causing India's stock, bond, and currency markets to suffer major losses.

According to Bloomberg, the coalition led by Modi won by a narrow margin, which will raise questions about the new government's ability to push through land and labor law reforms. Some investors believe that these reforms are crucial to maintaining India's economic growth. Shares in companies related to the government's development goals have plummeted, with Adani Ports Ltd. hit particularly hard.

Amit Kumar Gupta, Chief Investment Officer of Fintrekk Capital, said: 'The market expected the alliance led by the BJP to win 400 seats, but that definitely won't happen now. Investors are a little nervous and this nervousness will continue for a few hours until the lead is firmly established.'

As the Election Commission of India began counting the votes, volatility in the Indian stock market surged. The Indian VIX fear index jumped by 34%, marking its largest single-day increase since February 2022.