Markets surge on Modi victory hopes as Sensex, Nifty hit record highs before poll results

On the eve of India's election results, the stock market staged its most dramatic single day since 2015. The Sensex climbed 2,507 points—a 3.4 percent surge—to close at 76,469. The Nifty50 jumped 733 points, or 3.25 percent, finishing at 23,264. Both indices hit record intraday highs during the day's trading on June 3, with the Sensex peaking at 76,739 and the Nifty50 reaching 23,338. The last time Indian markets rallied this hard on the eve of election results was in 2009, when they gained about 2.46 percent. This time, the catalyst was clear: exit polls predicting a historic third consecutive term for Prime Minister Narendra Modi and his NDA coalition, with projections ranging from 350 to 370 seats against the opposition INDI Alliance's 125 to 150.

The optimism rippled across the financial system. The Nifty Bank index, for the first time in its history, breached the 51,000 mark, surging nearly 2,000 points or over 4 percent. The Indian rupee strengthened to its best intraday performance in more than five months, closing at 83.1425 against the US dollar after gaining nearly 0.4 percent. Early in the day, the rupee had peaked even stronger at 82.9575 before trimming some gains as importers hedged their positions and state-run banks placed bids.

Investors and analysts interpreted the exit polls as a signal of political stability ahead. Exit polls have proven reliable guides in the past two general elections—in 2014, when the BJP won 282 of 543 seats, and in 2019, when the party improved that tally to 303 seats. The removal of what analysts called "election jitters" that had weighed on markets throughout May unleashed a wave of buying. Akshat Garg, a senior manager at Choice Wealth, told analysts that the stock market was expected to rally significantly on the result day itself and in the week following. VK Vijayakumar, chief investment strategist at Geojit Financial Services, noted that the surge to record highs reflected investor confidence in the anticipated political stability. Nikunj Saraf, vice president at Choice Wealth, said the sentiment was likely to remain bullish, with increased buying activity pushing indices higher.

But analysts also sounded a note of caution. The bullish trend would likely depend on whether the actual results aligned with the exit polls. Any surprises or deviations could introduce volatility and lead to a more cautious market approach. The counting of votes was scheduled for June 4, just hours away.

If the NDA victory materialized as predicted, certain sectors were positioned to benefit. Largecaps in financials, capital goods, automobiles, and telecom were expected to lead the rally. The mood was further buoyed by news that India's GDP had grown 8.2 percent—better than expected—a figure released after market hours on Friday. Public sector undertakings such as REC, PFC, NTPC, NHPC, Coal India, and HUDCO were seen as likely to thrive under continued government support. Defence companies including HAL, BEL, Bharat Dynamics, and Cochin Shipyard were expected to gain from the government's emphasis on defence modernization and self-reliance. New-age commerce companies like Zomato, Nykaa, PB Fintech, and Mama Earth were positioned to grow with the push for a digital economy. Banking, infrastructure, and consumer goods sectors were also flagged as key areas to watch.

Analysts anticipated fresh record highs for both the Sensex and Nifty50 in the short term, provided the election results confirmed a stable government. Domestic institutional investors were expected to maintain their bullish stance, while foreign institutional investors were likely to increase their India exposure, viewing the country as a favourable option in emerging markets amid uncertainties in China's economy. The market had positioned itself for a decisive outcome. Whether that outcome would match the exit polls' predictions would determine whether the rally continued or gave way to volatility.