Stock market bloodbath: Why Nifty, Sensex tanked over 5% despite BJP leading

Around market closing hours on Tuesday, the ruling Bharatiya Janata Party (BJP) had won three seats, and was leading in 243 others, according to the data provided by the Election Commission of India (ECI). The ruling National Democratic Alliance (NDA) was leading on 294 seats. Anybody can tell that this is an indication that the BJP, led by Prime Minister Narendra Modi, is likely to be back in power.

For months, experts have been predicting that policy continuity, which would come with PM Modi scoring a rare third term, would be good news for the stock market.

However, the Indian stock market is seeing a bloodbath. At one point, both benchmark indices, Bombay Stock Exchange (BSE) Sensex and National Stock Exchange (NSE) Nifty 50, had tanked over 8 per cent.

Why has the stock market today plunged deep into the red, even though the BJP is expected to come back to power?

We take a look.

All red for Nifty, Sensex today

BSE Sensex opened at 76,285.78 on June 4, down 23 basis points from the previous close of 76,468.78. The 30-share pack continued to tumble, falling by 8.1 per cent to the day’s low of 70,234.43.

Nifty 50 followed a similar trend. It opened at 23,179.50, down 0.36 per cent from yesterday’s closing of 23,263.90. The index tanked 8.5 per cent to an intraday low of 21,281.45.

All indices, with the exception of the BSE FMCG pack, were in the red for the entire trading session till 2 pm. Stocks of public sector companies, especially state-owned banks, took a strong hit.

This sudden dip in the red was shocking also because of the exuberant market mood seen during the previous trading session.

On Monday, June 3, the stock market had soared to previously untouched levels. The 30-share Sensex had hit a lifetime high of 76,738.89, while the broader Nifty 50 had touched a record high of 23,338.70.

Why did the market dip?

Following the elections, several exit polls had predicted a significant win for the BJP, with numbers far exceeding those achieved in 2014 and 2019. Some polls had put BJP’s seat share at 400.

However, the trends so far suggest that the party may not even get the 272 seats needed for independently forming a government at the Centre.

That has thrown cold water on investor sentiment.

“If BJP doesn’t get a majority on its own, there will be disappointment. This is getting reflected in the market. Also it is possible that Modi 3.0 may not be as reform-oriented as the market expected and may turn more welfare-oriented. This is reflected in the strength of FMCG stocks,” VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

Jaykrishna Gandhi, Head - Business Development, Institutional Equities, Emkay Global Financial Services, said, “Markets rallied 3-3.5 per cent on expectation of a PM Modi-led NDA win on Monday. PSUs (especially banks) led the rally. Today, polls were not in line with exit poll outcome. Markets move more than 4-5 per cent down today.”

The brokerage house expects a 7-10 per cent downside for broader markets from current levels.

Rupak De, Senior Technical Analyst at LKP Securities, echoed this view. “The index has fallen by about 5 per cent due to a weaker trend for the NDA in the poll counting. The market, which had begun to price in a landslide victory for the NDA, is witnessing a significant correction due to margin calls, as retail investors were carrying heavily leveraged positions,” he said.

What next?

De also painted a grim picture of where the market might go. “Support seems to be very fragile. Immediate support is visible at the psychological level of 22,000, below which the index might fall further towards 21,400-21,500.”

However, there is hope. De believes that the Indian stock market can recover once the trend moves in favour of the BJP winning the election comfortably.

For now, the market has recovered from the day’s low of around 8 per cent. As of 3 pm, it was down roughly 6 per cent.