Should BJP, Narendra Modi fall short, markets could plunge 8-10% in one day

May 10 2014, 10:06 IST
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But caution about the vote results may prove warranted. But caution about the vote results may prove warranted.
SummaryShould BJP do poorly and Narendra Modi fail to become PM, some analysts predict shares could plunge up to 20% in the aftermath.

slowest pace in a decade. The hopes have sent sectors such as infrastructure and banks sharply higher.

Foreign investors have also bought in heavily, and now own a record 22% of companies listed on the NSE, according to Morgan Stanley data, after buying a net $20.1 billion last year and about $4.3 billion so far in 2014.

However, that high a level is raising concerns of possible destabilising foreign outflows that dent both the currency and shares.

A scenario of stock market volatility and huge volumes would mark the first major test for trading-system improvements made by Indian exchanges after a slew of “fat finger” incidents hurt confidence.

In a bid to prevent cases like a 2012 misplaced order that caused the NSE to plunge more than 15%, stock market regulator Sebi in September revised rules for circuit breakers. These allow for a more measured and more flexible response to sudden market movements.

An official of Sebi told Reuters last week that it asked exchanges to conduct stress tests to simulate a surge in trading volumes and volatility, including circuit breakers. “We need to ensure that the pay-in and pay-out obligations are met in such an event, and that the exchanges can handle a sudden surge in volumes,” said the official, who declined to be identified.

A spokeswoman for NSE declined to comment. A spokesman for BSE, the oldest exchange, said “I am not aware about any special communication from Sebi. I will check on that. But all systems are checked before market hours.”

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