Uncertain Election Outcome Rocks Indian and US Investment Markets

India's recent election results, announced on Tuesday, had a significant impact on both the national stock market and the value of investments in Indian companies and exchange-traded funds (ETFs) in the U.S. As vote counting progressed, Indian Prime Minister Narendra Modi's victory declaration, potentially sealing his third consecutive term, was overshadowed by his party, the Bharatiya Janata Party (BJP), losing its majority. This development resulted in the party now needing coalition partners for government formation. The financial world reacted negatively to BJP's less-than-anticipated performance. Consequentially, India's stock market experienced a downturn early Tuesday following the revelation of a poorer-than-expected performance by Modi's allies. Markets were nearly 6% down by market close, erasing considerable progress made earlier this year. This also translated to immediate impact on American depositary receipts (ADRs) of several Indian companies trading on U.S. exchanges. Banks such as ICICI Bank and HDFC Bank, for example, saw their ADRs fall over 9% Tuesday afternoon. Notably, large Indian companies trading on U.S. exchanges, such as Dr. Reddy’s Laboratories and Infosys, suffered downturns just under 1%, with Wipro shares off approximately 1.7%. Aligning with the struggling markets in India Tuesday, various India-focused ETFs were similarly impacted, with some of the largest experiencing billions in asset loss. Among those most affected were the iShares MSCI India ETF, as well as the Invesco India ETF, iShares MSCI India Small-Cap ETF, Franklin FTSE India ETF, each dropping more than 6%. The WisdomTree India Earnings Fund, in fact, plummeted almost 8%.