India markets rejoice exit poll prediction for a Modi landslide

By Bharath Rajeswaran and Ankur Banerjee

MUMBAI/SINGAPORE (Reuters) -Indian shares hit lifetime highs while the rupee gained and bond yields dropped, as investors were buoyed by expectations of sustained economic growth after exit polls indicated a decisive mandate and a third term for Prime Minister Narendra Modi.

Weekend exit polls projected the alliance led by Modi's Bharatiya Janata Party (BJP) would increase its 303 seats in the 543-member lower house and likely get a two-thirds majority - enough to initiate amendments to the constitution.

The broader Nifty index ended up 3.25% at 23,263.90 points after touching a record high of 23,338.70 in opening deals. The BSE index closed up 3.39% at 76,468.78 points, just off its lifetime peak of 76,738.89 hit earlier.

The Nifty and BSE index have both nearly doubled in value since their close a day before election results in 2019.

"As we await the official election results, significant volatility is expected. The index has now established a base in the 22,600-22,800 range, and a decisive close above 23,400 could drive it towards the 24,000 mark," said Ajit Mishra, senior vice president, research, at Religare Broking.

The benchmark 10-year government bond yield ended at 6.9438%, its lowest closing level since April 7, 2022, down 4 basis points on the day.

The rupee ended at 83.1425 against the dollar, rising nearly 0.4% on day, to mark its best single-day gain in more than five months.

A win for the BJP had been widely expected but, if confirmed in the official results, the margin will be larger than analyst forecasts and will be seen as a positive for equity markets that have scaled record highs on the back of economic growth.

India's exit polls have a patchy record, often getting the outcome wrong. The results of the general election where 642 million people voted are to be announced on Tuesday.

RIDE THE WAVE

"People will continue to clamour for a correction, but I believe every dip will be bought into. The month of June could be a defining one for the bulls, so one should make the most of this opportunity and stay a bit greedy," Vikram Kasat, Head - Advisory at brokerage Prabhudas Lilladher said.

"Last month, I kept saying 'buy the dip'; this month's slogan is going to be 'ride the wave'," he added.

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.

Analysts at Kotak Institutional Securities find very little value in the market and assess that most sectors and stocks are overvalued, "with the extent of overvaluation increasing in the inverse order of market capitalization, quality and risk".

"A large BJP victory may sustain rich-to-bubble multiples in parts of the market (automobiles, capital goods, public-sector units) for longer, but we would be surprised if many of the lofty embedded expectations come to fruition," they wrote.

POLITICAL 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 push for tougher land and labour reforms.

"The sustenance of the broad rally is anticipated to continue in-line with the magnitude of the actual tally, as inflows pour in, which were sitting on the sidelines over the last three months, said Vinod Nair, head of research at Geojit Financial Services.

Investors expect the Modi government to continue focusing on turning the country into a manufacturing hub - a project that has courted foreign companies including Apple and Tesla to set up production as they diversify beyond China.

(Reporting by Bharath Rajeshawaran, Tom Westbrook and Ankur Banerjee; Writing by Swati Bhat, Editing by Christopher Cushing, Mrigank Dhaniwala, Sonia Cheema and Bernadette Baum)