Indian stocks advanced to all-time highs and the rupee strengthened after exit polls showed the main opposition alliance led by Narendra Modi probably won the most seats in national parliamentary elections.

Modi’s Bharatiya Janata Party and its allies probably won 249 to 340 seats, according to six exit polls, with 272 needed for a majority. The Sensex has outperformed stock indexes in Brazil, Russia and China in 2014 as investors bet a Modi-led government will revive an economy growing at near the weakest pace in a decade. Results will be announced May 16.

“A result north of 240 seats for Modi would likely deliver him the Prime Minister’s office and a host of willing coalition partners,” Jonathan Schiessl, an Asian equities specialist at Ashburton Investments, which manages $10 billion, said by e-mail today from Jersey in the Channel Islands. The exit-poll numbers are “staggering,” he said.

Energy companies, including Oil & Natural Gas Corp. (ONGC), and power-equipment maker Bharat Heavy Electricals Ltd. (BHEL) were among the top gainers on the Sensex amid speculation that a Modi-led government will ease control over state companies. The S&P BSE India PSU Index climbed to a 15-month high.

The Sensex index has risen 21 percent since Sept. 13, when the BJP named Modi as its candidate for prime minister, while the rupee has gained 6.2 percent. The rally may extend if the BJP and its allies secure more than 266 seats, according to a Bloomberg survey of 19 brokers and investment advisory firms published May 9.

Global investors have plowed $10.7 billion into Indian stocks and bonds this year. They bought a net $341 million of shares today, according to provisional data from the exchanges, the most since March 28. Inflows may continue on expectations of a stable government, Goldman Sachs Group Inc. said in a report today. JPMorgan Chase & Co. said it expects “market revelry” to continue as exit polls show a Modi-led alliance may be less reliant on the support of regional parties.

David Fuller's view

India is now open for business

This is a big story for the world’s largest democracy which has just completed the biggest election in history.  The question for international investors today: Can India reverse its sad economic decline of recent years and regain the status of a successful developing economy?

Of course it can and that is what India’s electorate of approximately 800 million people have voted for.

They have chosen a strong, experienced and economically savvy leader who is now calling for unity following a robust electoral process.  Hopefully, that unity will also include an ability to work with India’s capable RBI Governor, Dr Raghuram Rajan, who has already proved his worth by halting the rupee's slide (shown inversely) when his appointment was first announced on August 6^th 2013.  

Do most other countries have an economically savvy prime minister (president), plus an internationally known and proven central banker?  They should be so lucky. 

If India’s electorate has given Narendra Modi an overall majority of at least 272 seats, as many of the exit polls suggest, he will have a free hand to develop India’s considerable economic potential.  Infrastructure programs alone would quickly boost India’s GDP growth.  India already has a growing number of highly successful corporations, despite the bureaucracy and infrastructure problems.  Under the new government, managerial talent should have a greater incentive to develop corporations within India rather than head overseas.    

International investors have mostly shunned India in recent years, for understandable reasons.  That is now changing and this recent ‘Street Wrap’ from Bloomberg shows that investment banks are revising ratings for India from underweight to overweight.  I think India has every chance of becoming one of the top performing stock markets over the next few years.