Indian markets fall: Modi's loss in Bihar state clouds outlook for reforms

Published November 9, 2015
"The market has overreacted," said U.R. Bhat, managing director of Dalton Capital, a unit of UK investment management firm Dalton Strategic Partnership.  — AFP/File
"The market has overreacted," said U.R. Bhat, managing director of Dalton Capital, a unit of UK investment management firm Dalton Strategic Partnership. — AFP/File

MUMBAI: Indian shares, bonds and the rupee fell to around six-week lows on Monday after Indian Prime Minister Narendra Modi's heavy defeat in Bihar state elections raised concerns that his government will struggle to pass policy reforms.

The benchmark index of the National Stock Exchange (NSE) of India fell as much as 2.3 per cent to its lowest since September 29, erasing gains in October sparked by the Reserve Bank of India's bigger-than-expected rate cut.

The rupee and 10-year benchmark bond fell to their lowest since September 16, with wider losses in the currency contained after the RBI was spotted intervening via state-run lenders.

Worries about the Bharatiya Janata Party (BJP) government come at a time of anxiety over when the Federal Reserve would raise United States (US) interest rates.

Data on Friday showed US job growth surged in October and the unemployment rate hit a 7-1/2-year low, increasing the likelihood of a December rate hike.

At the same time, investors said they would not overreact. India has continued to attract foreign investment this year, especially to bond markets, as its economic fundamentals are seen as better than other emerging markets such as Brazil.

"The market has overreacted," said U.R. Bhat, managing director of Dalton Capital, a unit of UK investment management firm Dalton Strategic Partnership.

"The state of the economy and how new investment intentions get translated into earnings growth will decide the direction of the market," he said.

"Bihar will be forgotten in the next 24 hours."

Results on Sunday showed Modi suffered a second straight regional election setback, raising worries about his ability to pass key reforms such as a goods and services tax, given the ruling coalition lacks a majority in the upper house of parliament.

Disappointment over the pace of reforms has seen momentum wane for Indian shares, which are down about 14pc since hitting a record high in early March.

However, bonds have held up better after the RBI has cut the key lending rate by 125 basis points so far this year on the back of easing inflation.

Still, foreign investors have remained buyers, with net purchases of $9.9 billion in equities and debt so far this year.

The NSE was down 1.1pc as of 05:02 GMT, while the 10-year bond yield was up 5 bps. The rupee was trading at 66.3625 per dollar compared to its 65.7550 close on Friday.

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Kurram atrocity
Updated 22 Nov, 2024

Kurram atrocity

It would be a monumental mistake for the state to continue ignoring the violence in Kurram.
Persistent grip
22 Nov, 2024

Persistent grip

An audit of polio funds at federal and provincial levels is sorely needed, with obstacles hindering eradication efforts targeted.
Green transport
22 Nov, 2024

Green transport

THE government has taken a commendable step by announcing a New Energy Vehicle policy aiming to ensure that by 2030,...
Military option
Updated 21 Nov, 2024

Military option

While restoring peace is essential, addressing Balochistan’s socioeconomic deprivation is equally important.
HIV/AIDS disaster
21 Nov, 2024

HIV/AIDS disaster

A TORTUROUS sense of déjà vu is attached to the latest health fiasco at Multan’s Nishtar Hospital. The largest...
Dubious pardon
21 Nov, 2024

Dubious pardon

IT is disturbing how a crime as grave as custodial death has culminated in an out-of-court ‘settlement’. The...