Bonds, rupee set to gain as exit polls show landslide win for PM Modi

The yield on the benchmark 10-year government bond settled at 6.98 per cent on Friday, while the rupee settled at Rs 83.47 against the dollar

Bonds and the rupee are poised to rise on Monday after exit polls indicated a landslide win for the National Democratic Alliance.

The results of the 18th Lok Sabha elections will be announced on June 4.

The yield on the benchmark 10-year government bond settled at 6.98 per cent on Friday, while the rupee settled 83.47 against the US dollar.

“The outcome, if in line with exit polls, would likely calm investor nerves as political and policy continuity will be good for risk assets in the immediate run and macro stability in the medium term,” said Madhavi Arora, lead economist, Emkay Global Financial Services.

“FX and rate markets will cheer the outcome, with RBI likely to juggle with the problem of plenty. Policy focus will continue to keep INR aligned with the rest of EM Asia peers. Long bonds positioning should be buoyed. We continue to see the bull steepening of the government securities curve in the coming months,” she added.

Market participants anticipate that election predictions will bring some stability to the market, which has been volatile in recent weeks due to concerns that the BJP may significantly fall short of its 400-seat target because of low voter turnouts.

“The market doesn’t care about the party which is going to win. They want a comfortable majority as it is easier to formulate policies,” said a dealer at a state-owned bank. “If the results are in line with the exit polls, it is positive for the market,” he added.

The higher-than-expected growth in the last quarter of the financial year 2023-24 is expected to further aid market sentiment.

India's economy witnessed a 7.8 per cent year-on-year (Y-o-Y) growth in the January-March quarter, exceeding expectations.

It was driven by a significant expansion in the manufacturing sector. Economists predict this positive momentum will continue throughout the year.

“Looking ahead, we expect FY25 GVA (growth from the supply side) of 6.8-7 per cent. In Q1FY25, we could continue to see the wedge between GDP and GVA persist and remain high as government spending is expected to be low. In terms of drivers for FY25, the economic activity is expected to be supported by the recovery in consumer demand, particularly in the rural sector as inflation stabilises and a normal monsoon supports rural incomes,” said HDFC Bank in a note.