Mumbai: Indian equity markets are so confident that the BJP led by Narendra Modi will win the country’s elections that brokers fear anything short of a decisive victory could spark the worst sell-off in years. Shares hit a record high on Friday on the strong speculation of a sweeping win for the BJP. But caution about the results may prove warranted. Most investors were caught off guard in the past two general elections — in 2004 and 2009 — as opinion polls got it badly wrong. Now some precautionary moves are being made. Customers say at least four brokerages have raised margin requirements due to concern that there could be intense volatility after election results are unveiled on May 16.
The stock market regulator has asked exchanges to test their trading systems, according to an agency official, especially new mechanisms put in place in 2013 to deal with market volatility. Sebi did not reply to a written request for comment. A surprise could knock both shares and the rupee. The gains stem from the assumption the BJP-led National Democratic Alliance (NDA) will win a majority, or near it. Should BJP do poorly in the vote and Mr Modi not become PM, some analysts predict shares could plunge 8 to 10 per cent in one day, and up to 20 per cent in the aftermath.
That would roughly match what happened in 2004, when investors were shocked that the BJP didn’t win the election. “If NDA does not come to power, markets can correct by 15 per cent or a little more,” said Ritu Jain, MD of Eos Capital Advisors.
