India’s Stock Market Tumbles on Close-Run Election Result

Traders in Mumbai started the day with a shock as India began tallying votes from a seven-week election and it became clear that the government of Narendra Modi was not doing nearly as well as expected. By the end of trading on Tuesday, the markets were down 6 percent, nearly wiping out the year’s gains.

India’s stock market had been on a tear, buoyed by economic growth and confidence that Mr. Modi, the most powerful prime minister in generations, was sure to secure a third term in office. Investors looking to India yearn for political stability and many have done especially well during the first 10 years of Mr. Modi’s pro-business leadership. Even after Tuesday’s decline, the blue-chip Nifty 50 index has nearly tripled since Mr. Modi became prime minister.

But the Indian market’s main indexes have entered choppier waters on the way to the election.

Some companies, namely those considered “Modi stocks,” fared especially poorly as the election result came into view. The Adani Group’s fortunes were always the most eye-catching. Gautam Adani rapidly became Asia’s richest man, as his infrastructure-oriented businesses worked in harmony with Mr. Modi’s plans for the country. That is, until a short-seller’s report in early 2023 accused the Adani Group of market manipulation and accounting fraud.

Adani’s stocks crashed, but within a year, as it became clear that the Indian government and many of the world’s biggest banks would be patient with the companies, they climbed back up. On Tuesday, Adani Enterprises, the group’s flagship company, shed 19 percent of its value, putting it halfway between its peak and subsequent trough.

Mr. Modi has anyway won enough seats to form a new government, albeit with a much slimmer majority than forecast. Chris Wood, global head of equity strategy at Jefferies, an investment bank, last year gamed out an even worse result for Mr. Modi, saying during an investor summit in October that if Mr. Modi were suddenly defeated, “I would expect a 25 percent correction if not more.”