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INR: Indian Assets Rally as Exit Polls Show Modi Set for Landslide Election Win

INR
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  • Several exit polls showed Prime Minister Narendra Modi’s Bharatiya Janata Party-led National Democratic Alliance will win substantially more seats than the 272 needed for a majority in India’s 543-seat lower house of parliament.
  • The results have boosted Indian financial assets, while USDINR 1w implied vols have slipped sharply from 5.70% on Friday to around 3.79% at typing. The Nifty and Sensex indices stand over 3% higher on the day, both at fresh record highs. Meanwhile, USDINR traded as much as 0.63% lower compared to Friday’s high, reaching an intraday low of 82.9512 at the start of the session– its lowest levels since mid-March.
  • Following the results, Goldman Sachs note that a narrow current account deficit and adequate FX reserves means that the INR offers resilient carry. Additionally, inflation back within the RBI's target range and a consolidating fiscal deficit means that IGBs remain attractive. They continue to recommend long 2-year IGBs and short EURINR, and continue to see further upside in equities.
  • In addition to the election results, the above-consensus GDP data released outside of trading hours on Friday is likely providing an additional tailwind to the INR at the margins. Looking ahead, the RBI rate decision at the end of the week provides the highlight on the local calendar, where analysts are expecting the MPC to retain their policy stance and keep the policy rate unchanged at 6.50%.
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  • Several exit polls showed Prime Minister Narendra Modi’s Bharatiya Janata Party-led National Democratic Alliance will win substantially more seats than the 272 needed for a majority in India’s 543-seat lower house of parliament.
  • The results have boosted Indian financial assets, while USDINR 1w implied vols have slipped sharply from 5.70% on Friday to around 3.79% at typing. The Nifty and Sensex indices stand over 3% higher on the day, both at fresh record highs. Meanwhile, USDINR traded as much as 0.63% lower compared to Friday’s high, reaching an intraday low of 82.9512 at the start of the session– its lowest levels since mid-March.
  • Following the results, Goldman Sachs note that a narrow current account deficit and adequate FX reserves means that the INR offers resilient carry. Additionally, inflation back within the RBI's target range and a consolidating fiscal deficit means that IGBs remain attractive. They continue to recommend long 2-year IGBs and short EURINR, and continue to see further upside in equities.
  • In addition to the election results, the above-consensus GDP data released outside of trading hours on Friday is likely providing an additional tailwind to the INR at the margins. Looking ahead, the RBI rate decision at the end of the week provides the highlight on the local calendar, where analysts are expecting the MPC to retain their policy stance and keep the policy rate unchanged at 6.50%.