India’s BSE Sensex hit a record high of 23,572.88 Monday, rising as much as 2.5% on the back of exit polls that show that Narendra Modi’s Bharatiya Janata Party (BJP) will win India’s general elections.
A lot is being expected of opposition leader Modi, after a Congress party led coalition government has seen India’s GDP growth at ten-year lows. Morgan Stanley Investment Management’s Ruchir Sharma has pointed out that Modi could win even if two-thirds of India didn’t vote for him.
Of course one should remember that Indian polls have been very wrong in the past.
In 2004, most polls had forecast that the incumbent party would return to power, but JP Morgan’s Toshi Jain pointed out in a note published last month, that the incumbent won far fewer seats than expected and “the Sensex crashed 11% the day after the results and the rupee lost 3% of its value in the election month.”
At the time the error was blamed on the fact that polls hadn’t fully captured the mood in rural India. But in 2009, the incumbent won more seats than expected, and markets didn’t anticipate this move. “Equity markets rallied whopping 17% in a day, triggering circuit-breaker and the rupee surged 4% in the election month,” wrote Jain.
Jain has pointed out that the existing forecasting challenges in India have only been made more complex by the emergence of the “Aam Aadmi Party whose success in the recent state elections in Delhi was underestimated.”
So, we’ll keep our eyes peeled as the votes are counted on May 16.
Here’s a look at how the BSE Sensex has traded:
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