The election results may fall short of expectations, and the Indian stock, bond and currency markets suffer setbacks.

As of press time, the SENSEX index in India has plummeted by more than 5%, and the stock prices of Indian state-owned enterprises have plummeted.

The stock price of the Indian National Bank fell by as much as 15%, NTPC fell by 15%, Bharat Electronics fell by 20%, Power Grid, a non-banking financial company, fell by 20%, Coal India fell by 15%. The decline in the BSE PSU index tracking state-owned enterprises is as high as 14%.

The Indian VIX panic index jumped 34%, the biggest daily increase since February 2022.

After rising in the previous trading day, the Indian rupee against the US dollar has suffered its largest decline in 10 months.

India's 10-year treasury notes yield rose 1.37% to 7.042%.

On the domestic ETF market, the Indian fund LOF (164824) fell sharply by 2.37%, the latest net asset value was 1.522, and the trading volume was 586 million yuan.

Has the market risen too high?

Today, the counting of votes in the Indian election has begun. Previously released polls showed that the party led by current Prime Minister Modi will win with an overwhelming advantage and obtain 350 to 400 seats.

In this expectation, the Indian stock market soared yesterday, with the NIFTY index achieving its largest increase in three years, and the rupee also achieving its largest increase this year.

Earlier today, Indian television channels showed that in early vote counting, Modi's party won nearly 300 seats out of 543 seats. Although it won a majority of seats, this number is far lower than the overwhelming advantage predicted by the polls. This caused a sharp decline in the Indian capital market.

It should be noted that at that time, only about 10% to 15% of the votes were counted.

At present, the market has basically priced in Modi's election victory. The current tug-of-war is how big the victory margin is.

Some analysts believe that the financial market has already digested the expectation of Modi's re-election, and Monday's rebound was a bit excessive.

Amit Kumar Gupta, chief investment officer of Fintrekk Capital, said: "The market expects the alliance led by the Indian People's Party to win 400 seats, but it now appears that this will not be the case. Investors are a bit nervous, and this situation will continue for several hours until (the party's) leading position is stable."

Researcher Siddhartha Khemka said:

"If the National Democratic Alliance (NDA) receives 330-340 seats, the market will be very happy, but the current results are obviously lower than the market's comfort level, which is the reason for some panic and concern."

"To be honest, these trends are early. The market does not want a fragmented parliament because it will cause delays in many decisions."

In addition, after the previous rise, the valuation of the Indian stock market is already high. According to Bloomberg data, the expected price-earnings ratio of Indian stocks is more than one standard deviation higher than the ten-year average level.

Sameer Kalra, founder of Target Investing, said: "The market value-to-GDP ratio of the Indian stock market has reached 140%. If there is some uncertainty in future policy measures, there may be significant adjustments."

What does the election result really mean?

In terms of impact, analysts believe that the results of this election in India will affect the implementation of India's reforms in the future.

Madhavi Arora, Chief Economist at Emkay Global, said, "The margin of victory may determine the extent of land, labour and capital reforms in the next phase. The upcoming budget will become more important, especially in terms of the combination of capital expenditure and revenue."

Gaurav Dua, Capital Market Strategy Director of Sharekhan, believes that if Modi's competing parties win, they may hinder Modi's implementation of structural reforms.

In yesterday's article, we analyzed the several bullish factors that have recently emerged in the Indian capital market, and that the Indian economy is still strong. In addition, with Modi's election victory already assured, India will continue to push forward with reforms.

Therefore, in the long run, analysts are still very bullish on the Indian market.

Vivek Bhutoria, investment manager at Federated Hermes, said, "India is formulating investment-attracting policies, and over time, the readjustment of the global supply chain will benefit India. We are already seeing benefits in the exports of electronic products and chemicals."

Steve Lawrence, Chief Investment Officer of Balfour Capital, believes that India's investment focus is on infrastructure: roads and electrical utilities.