Indian stock futures jumped early on Monday and the rupee rose as exit polls pointed to a third term and sizable mandate for Prime Minister Narendra Modi, whom investors hope will spend on infrastructure and manufacturing to keep economic growth going.
A win had been widely expected but, if confirmed in official results due on Tuesday, the margin will be larger than analyst forecasts and seen as a positive for equity markets that have scaled record highs on the back of economic growth.
"We had always felt that the economic progress made by most Indians over the last 10 years was sufficient to see Modi re-elected with ease," said Rob Brewis at UK-based Aubrey Capital Management.
"If this result is confirmed then I think it is a real vote of confidence and Modi can really press ahead now. So maybe that faster growth we need can be attained. The markets should like that."
CONTINUITY
India's economic growth accelerated to 8.2% in the financial year to March 2024 led by government spending on infrastructure and a boom in real estate, data showed last week.
If a Modi victory is as strong as indicated by the exit polls, analysts think he would have the political capital to keep going and perhaps even push for tougher land or labour reforms.
"If exit polls prove correct, it would be a vote for continuity," analysts at Citi said in a note to clients.
"Medium-term, we expect stocks positively exposed to the focus on infrastructure/logistic and industrial/manufacturing to do well," they said, noting Adani Ports (APSE.NS), conglomerate Larson & Toubro (LART.NS) and Bharat Electronics (BAJE.NS) as among likely beneficiaries.
Investors also expect the Modi government to continue focusing on turning the country into a manufacturing hub - a project that has courted foreign companies including Apple (AAPL.O) and Tesla (TSLA.O) to setup production as they diversify beyond China.
Foreigners, who poured a net $20.7 billion into Indian equities last year but had pulled back ahead of the election, may also see the vote's conclusion as an excuse to buy.
"Most clients we met with in recent months appeared to infer that political continuity would contribute to a stable macro-economic environment and continuing reforms," said analysts at Goldman Sachs.
India's exit polls have a patchy record, often getting the outcome wrong. The results of the general election among a billion eligible voters are to be announced on Tuesday.
