Modi's win sends Indian stocks to record, rupee to 11-month high

[MUMBAI] Indian equities rallied to a record and the rupee climbed to an 11-month high after Prime Minister Narendra Modi's resounding victory in state elections boosted expectations for a continuation of his reform agenda.

The NSE Nifty 50 Index climbed 1.7 per cent to 9,087, crossing its March 2015 record close, as the market reopened after a holiday. The India VIX Index, a gauge of expected stock-price swings, touched an all-time low. The rupee rose as much as 0.6 per cent to 66.1950 per dollar, its highest since April, prompting the central bank to buy dollars to cap gains, Mumbai-based traders said.

"This win will give Modi the confidence to push ahead with more reforms and not pursue populist policies," Sampath Reddy, chief investment officer at Bajaj Allianz Life Insurance Co, said by phone. The insurer, which oversees 480 billion rupees (S$10.26 billion) of assets, is bullish on financial-services companies and metal producers, he said.

Mr Modi's Bharatiya Janata Party won 312 seats in the 403-member assembly of Uttar Pradesh, according to the Election Commission of India, up from 47 in 2012. The results in India's largest state were seen as a litmus test of Mr Modi's popularity and reforms, including opening up the country to more foreign investment and seeking to introduce a goods and services tax, ahead of general elections in 2019.

While exit polls released last week suggested a large BJP victory was possible in Uttar Pradesh, the scale of the win was stark in a state that has long been divided along religious and caste lines. It is also a repudiation of political foes who assumed that Mr Modi's disruptive Nov 8 move to junk high-value currency notes would be politically unpopular.

"Uttar Pradesh is a state where mandates have tended to be mostly divisive, so the result is a mandate for development, which has been sorely missing in the state," Gautam Sinha Roy, a fund manager at Mumbai-based Motilal Oswal Asset Management Co, said by phone. "Markets will now start assigning higher probability to a BJP victory in the 2019 polls." India's economic growth has been 7 per cent or more in each of the last four quarters, which has helped lure US$3.4 billion of foreign funds into local stocks and bonds this year. Mutual funds bought shares for seven months through February, including a record US$2.1 billion in November. The S&P BSE Sensex has risen 11 per cent in 2017, and the rupee is up 2.6 per cent against the dollar.

BLOOMBERG