On Tuesday, the Indian stock market saw its largest drop in four years, as vote counting showed that Prime Minister Modi's leadership of the National Democratic Alliance was unlikely to win by the overwhelming margin predicted by exit polls.

In the early counting of votes in Tuesday's Indian general election, Modi's party appeared to be winning the most votes, but the number was far lower than the overwhelming advantage predicted by exit polls, and enthusiasm for Modi's expected victory in the election has waned.

India's Nifty index fell as much as 8% during trading, hitting a new low since January; the NIFTY small cap index plummeted as much as 10%, the largest drop since March 2020; and the SENSE index plunged 8%, the largest drop since April 2020, and pulled the Indian stock market significantly lower than the historic highs set a day earlier.

Indian state-owned companies' stock prices collapsed. The Bank of India's stock price fell as much as 15%, NTPC (National Thermal Power Corporation) fell 15%, Bharat Electronics fell 20%, Power Grid Corporation of India fell 15%, PFC (Power Finance Corporation) fell 20%, and Coal India fell 15%. The BSE PSU index tracking state-owned enterprises fell as much as 14%.

Umesh Kumar Mehta, Chief Investment Officer of Samco Mutual Fund, said, "The market is falling in respect because it is digesting the changes in leadership structure."

Mehta said that if the National Democratic Alliance is forced to seek the support of small parties to form a government, it may not be able to operate as effectively as it has in the past 10 years. "If power is divided, we believe the market should be more nervous. But as long as the current leaders and Prime Minister continue to remain in office, the decline in the stock market will not be significant."

On Tuesday, India's VIX panic index jumped 34%, the largest single-day increase since February 2022.

Previously, weekend exit polls showed that the National Democratic Alliance led by Modi would win a major victory, and on Monday, the Indian stock market hit a historic high, buoyed by expectations of continued economic growth.

Since Modi became prime minister in May 2014, as of Monday's close, India's benchmark stock index has more than doubled in value. However, on Tuesday, the stock prices of Indian state-owned banks and infrastructure companies, which had surged on Monday, plummeted.

The rupee fell to 83.48 against the dollar, down from the previous day's close of 83.1425. The benchmark India 10-year treasury notes yield rose 12 basis points to 7.06%.

Foreign investors put a net $20.7 billion into the Indian stock market last year, but withdrew before the election. If the National Democratic Alliance wins a decisive victory, it is widely expected to become a buyer.

According to preliminary trading data, they bought net worth INR 68.51 billion ($824.4 million) of stocks on Monday, while domestic institutional investors bought INR 19.14 billion of stocks.

Investors expect the Modi government to continue to focus on making India a manufacturing hub, a project that has attracted foreign companies including Apple and Tesla to open new factories in India.

Steve Lawrence, Chief Investment Officer of Balfour Capital, said, "India's focus is on infrastructure." Balfour Capital manages €350 million ($381.61 million). "It's all about infrastructure investment, roads and electricity. With the technology they have, you can see huge growth."