India’s Wall Street has twisted and turned.
Investors on the Indian stock exchange in Mumbai responded enthusiastically to the first exit polls. They went on a buying spree on Monday, driving up the prices of so-called Modi shares, those associated with the prime minister’s spending priorities or believed to benefit from his fiscal policies.
When the actual voting results were tallied, the stock plummeted. Shares of Adani Group’s flagship stock lost around 19% of their value in one trading day. The blue chip index lost around 6%, almost erasing the gains of the first five months of the year.
Modi remains popular among India’s business tycoons, but investors need to find out which companies will benefit from a new government.
Chris Wood, global head of equity strategy at Jefferies, an investment bank, warned last year that if Modi lost he would “expect a 25% correction, if not more” in the Indian stock market. Historically, Indian companies have performed equally well during periods of coalition governance. So, Wood said, even without Modi in power, he expects stocks to “rebound sharply” based on the strength of the country’s economy as a whole.