Mumbai: Indian shares were trading down 1.3% on Thursday, as investors braced for general election results on Saturday amid concerns it may produce a weak coalition.
The market initially fell 2.7% after exit polls indicated a slender lead for the ruling Congress-led coalition (UPA) over the opposition Bharatiya Janata party (BJP)-led alliance (NDA), but both groups will need smaller allies to gain a parliamentary majority.
India’s elections are hard to predict and most exit polls in the last general election in 2004 were off the mark. Analysts said the market would rise if either of the two groups were able to cobble together a government. A group of smaller regional parties including the communists are also in the fray.
“The race between the UPA and NDA appears to have become closer,” Tushar Poddar, an analyst at Goldman Sachs, said.
If the exit polls are accurate, the UPA would likely come to power after building a coalition with some regional parties and the communists, and allay market fears that a weak coalition of only regional parties will gain power, he said.
By 11:34am, the 30-share BSE index was down 1.3% at 11,861.13 points, with 25 stocks declining and the 50-share NSE index was down 1% at 3,599.40.
The benchmark had fallen more than 1% on Wednesday as the political outlook became clouded, after rising 4% in the previous session on Tuesday on speculation the market-friendly BJP group is gaining momentum.
The index has rebounded almost half from its March low and is up 23% this year after plummeting 52% in 2008.
Energy giant Reliance Industries and lenders ICICI Bank, HDFC Bank and State Bank of India dragged the main index lower. Trading is expected to volatile till official results are announced.
“Investors are going to just wait it out. It doesn’t play to be a hero in this market,” said Rajeev Malik, chief economist at Macquarie in Singapore.
“I wouldn’t attach too much credibility to the exit polls. But there’s clearly a lot of nervousness in the markets, also given the global backdrop.”
Weekly inflation data is out and the figure has fallen to 0.48% for week ended 2 May from previous week’s annual rise of 0.70% government, but the political uncertainty may still be the motivator.
The annual inflation rate was expected to have fallen back towards zero at the start of May after rising in the previous three weeks, a Reuters poll of analysts showed on Wednesday.
Reliance Industries, which has the biggest weight in the main index, fell 1.4% to Rs1,911.35.
Private-sector lender ICICI Bank shed 3.2% to Rs532.05, while rival HDFC Bank dropped 1.5% to Rs1,145.50. Government-run State Bank of India eased 0.8% to Rs1,251.95.