India election: Why Modi’s narrow win sent the stock market tumbling

Indian shares suffered their biggest drop since 2020 after the Bharatiya Janata Party lost its parliamentary majority.

India’s stock market took its worst tumble in four years after Indian Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) lost its parliamentary majority.

The shock outcome of Tuesday’s election count means Modi will need to rely on smaller parties to form a governing majority in the 543-member Lok Sabha, the lower house of India’s parliament, raising uncertainty about the Indian leader’s ability to pursue his pro-business agenda.

The NSE Nifty 50 and BSE Sensex indexes closed at 5.93 percent and 5.74 percent lower, respectively, on Tuesday, after falling by as much as 8.5 percent earlier in the day.

Indian stocks recorded further losses on Wednesday morning before recovering in the afternoon, with the two indexes each up more than 1.5 percent as of 05:30 GMT.

Investors have been overwhelmingly favourable towards Modi’s economic agenda throughout his decade-long tenure.

Pledging to transform India into a developed nation by 2047, Modi has directed massive investment into infrastructure, championed domestic manufacturing, lured foreign investment, cut red tape and promised to root out corruption.

On the Indian leader’s watch, the Nifty 50 index has almost tripled in value – although some analysts argue that many Indian firms are now overvalued.

Earlier this year, India’s stock market capitalisation topped $4.3 trillion to overtake Hong Kong as the world’s fourth-largest market.

Before Tuesday’s surprise election outcome, Indian stocks surged to record highs as exit polls showed the BJP-led National Democratic Alliance (NDA) on track for a landslide victory.

Modi, a popular but polarising leader,