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By Omar Mohammed
Reporter, Economy & Finance
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India's stock market lost hundreds of billions of dollars in value as shares slid after election results suggested that the incumbent Prime Minister Narendra Modi's governing Bharatiya Janata Party (BJP) had performed weaker than expected.
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The NIFTY 50 index fell 5.9 percent on Tuesday, its poorest single-day drop in four years, a loss of nearly $390 billion, Bloomberg News reported. The negative performance followed tallies that showed the BJP had failed to secure an outright majority and would need the help of its allies to form a government.
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The ruling party may win about 245 seats in the lower parliament, which would be less than the 303 it won five years ago, said Shilan Shah, a deputy chief emerging markets economist at Capital Economics.
"Prime Minister Modi's BJP appears to have failed to hold on to the single-party majority in the Lok Sabha (lower house of parliament) that it has had since 2014," he said in a note. "That is a significant setback."
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Shah went on to say that the BJP was still set to stay in government but will have to rely on coalition partners and its BJP-led National Democratic Alliance was set to secure the 290 majority.
"Reflecting the smaller mandate, markets have tumbled today," Shah said.
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The stock market fell from its record high a day prior when exit polls appeared to show BJP on course for a landslide victory.
"Stepping back, equities are back to where they were in mid-March," Shah noted.
Modi is still set to serve a third term as India's leader and will preside over an economy that is forecast to continue to grow. But instituting change would now be complicated with a reduced majority, Shah pointed out.
"Narendra Modi will begin his third term as India's Prime Minister with a weakened mandate and that will make the passage of contentious economic reforms more difficult. But he will still be able to work as the head of a stable coalition."
Shah forecast growth of 6 to 7 percent over the next two years.
"That would leave the economy on course to more than double in size over the next decade," he noted. "That sets the stage for India to overtake Japan and Germany to become the world's third-largest economy (at market exchange rates) within the next couple of years."
Progress over economic reforms was not assured, especially on changes in the structure of the labor market.
"Some progress has been made but it tends to come in fits and starts and so far has been limited to a few states," Shah said. "The election result may make further progress harder."
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