Indian shares plunged over 8 per cent on Tuesday, set for their worst day in four years and erasing their gains for 2024, as vote-counting trends showed Prime Minister Narendra Modi’s alliance falling short of a predicted landslide victory.

Modi’s bloc looked set to secure a majority in early vote counting in the general election on Tuesday, but the numbers were well short of the landslide predicted in exit polls.

The NSE Nifty 50 index was down 7.2 per cent at 21,605 points as of 12:41 pm, and the S&P BSE Sensex fell 6.6pc to 71,366.

The indexes fell as much as 8.5pc, poised for their worst session since the onset of the COVID-19 pandemic. They had jumped over 3pc on Monday after exit polls projected that the BJP-led alliance will likely get a two-thirds majority in the lower house.

With the day’s losses, the benchmarks are down nearly 1pc so far this year.

TV channels showed the ruling National Democratic Alliance was ahead in nearly 300 seats. 272 seats is the minimum needed for a simple majority in the 543-member lower house of parliament.

The volatility index jumped to its highest since Feb 2022 at 31.71, after easing on Monday.

“Since exit polls were at an extreme, anything that doesn’t point to more strength is obviously a negative,” said Anand James, chief market strategist at Geojit Financial.

“Despite exit polls giving a resounding victory for the ruling party, markets volatility gauge did not go down below 20, as it was pricing in an outlier,” James said.

The longs added recently by the foreign investors after the exit polls may have come under pressure, he added.

All sectors were in the red. Banks fell 7.9pc, realty dropped 9.3pc, infrastructure declined 13pc, while oil and gas stocks lost 11.7pc and state-run companies and public-sector banks retreated 19pc and 18pc, respectively.

The small-cap and mid-cap were trading down 12.4pc and 11.3pc.

Adani Enterprises and Adani Ports lead losses with a 25pc fall each in Nifty 50 index. Other Adani group stocks were down between 9pc-20pc.

The group stocks had jumped between 4pc-18pc on Monday after the exit polls.

“The fear of the market is whether present numbers will stay or will reduce further. (Even at current majority) there will be some element of disappointment as they are below market expectations,” said Mayuresh Joshi, head- equity research India at William O’Neil and Company.

“Markets were at an all-time high, a lot of hope was built up (on BJP’s majority) and these will unwind over the next few sessions and the focus will turn to policy announcements as the reforms will any way continue with BJP getting an absolute mandate,” Joshi said.

“Markets have dropped as they are now pricing in the change in governance structure,” said Umesh Kumar Mehta, chief investment officer at Samco Mutual Fund.

Mehta said if the National Democratic Alliance (NDA) is forced to seek support from smaller parties to form government, it may not be able to function as efficiently as it has over the last 10 years.

“If there is a fractured mandate, we think markets should be more nervous. But so long as the current leadership and the prime minister stays, the drop will not be massive,” he added.

Exit polls over the weekend had projected a big win for Modi’s NDA, catapulting markets to all-time highs on Monday as investors were buoyed by expectations of sustained economic growth.

The Indian rupee dropped to as low as 83.48 against the dollar versus its previous close of 83.1425. The benchmark 10-year bond yield rose as much 12 basis points to 7.06pc.

“The only thing that a lower number than 300 for NDA will do is compel a rethink for the main party on policy approach so far and could mean policies to address K shaped recovery and hence positive for consumption sector,” said Garima Kapoor, economist, Elara Capital.

Foreigners, who poured a net $20.7 billion into Indian equities last year but had pulled back ahead of the election, are widely expected to turn buyers if the Modi alliance secures a decisive mandate.

They bought shares worth a net 68.51bn Indian rupees ($824.4 million) on Monday, while domestic institutional investors purchased 19.14bn Indian rupees in stocks, based on provisional exchange data.

Investors expect the Modi government to continue focusing on turning the country into a manufacturing hub — a project that has courted foreign companies including Apple and Tesla to set up production as they diversify beyond China.

“India is all about infrastructure,” said Steve Lawrence, chief investment officer at Balfour Capital, who manages 350m euros ($381.61m) across different funds.

“It’s all about infrastructure investments; roads and electricity. With the type of technology that they have, you could see a tremendous amount of growth.”

Shares in Modi ally Adani’s firm drop 25pc

Shares in the main listed unit of Indian billionaire Gautam Adani’s conglomerate fell 25 per cent. Adani is considered a longtime close associate of Modi, both from Gujarat state.

Opposition parties and other critics have accused Adani of benefitting from their relationship to unfairly win business and avoid proper oversight.

Adani Enterprises was trading at $32.72 (2,733 INR) per share after midday, down $9.05 from Tuesday’s open. It was the biggest negative mover on the Mumbai stock exchange.