The stock market posted itsworst session in more than four years on Tuesday, as voting trends on election results day showed Prime Minister Narendra Modi's alliance falling short of a predicted landslide victory.
While the Modi-led National Democratic Alliance will still likely form the government, analysts said the Bharatiya Janata Party winning fewer seats could prevent the government from pursuing an aggressive reform agenda.
The NSE Nifty 50 index was down 5.3 per cent at 22,024 points as of 2:45 p.m. IST, and the S&P BSE Sensex fell 5.2 per cent to 72,443.
The indexes fell as much as 8.5 per cent earlier in the day, after hitting record highs on Monday.
The volatility index jumped to its highest since Feb. 2022 at 31.71.
"Markets were at an all-time high, a lot of hope was built up (on BJP's majority) and this will unwind over the next few sessions, said Mayuresh Joshi, head- equity research India at William O’Neil and Company.
"The focus will turn to policy announcements as the reforms will any way continue with BJP getting an absolute mandate," Joshi said.
TV channels showed the ruling National Democratic Alliance was ahead in nearly 293 seats, while the coalition of opposition parties led by the Congress was ahead in more than 220 seats. 272 seats is the minimum needed for a simple majority in the 543-member lower house of parliament.
Traders said that selling by high-frequency traders accelerated the drop and the sharp fall triggered margin calls.
The market is witnessing a significant correction due to margin calls as retail investors were carrying heavily leveraged positions, said Rupak De, Senior Technical Analyst, LKP Securities.
Fresh short positions being built-up is also added to volatility, said Aniket Nerkar, founder alphastrat, a firm specialising in trading and investment strategies of derivatives.
All sectors except consumer goods were in the red.
Banks fell 7.5 per cent, realty dropped 9.4 per cent, infrastructure declined 10.2 per cent, while oil and gas stocks slumped 11.7 per cent and state-run companies and public-sector banks tumbled 19 per cent and 18 per cent, respectively.
The small-cap and mid-cap were trading nearly 8 per cent lower each.
State-run companies saw their worst day ever, while banks, finance, infrastructure, realty, energy and mid-cap stocks saw their worst session since March 2020.
Adani Enterprises and Adani Ports sank 18 per cent and 19 per cent respectively, and were the worst losers among Nifty 50 stocks. Other Adani group stocks were down between 9 per cent-18 per cent.
The group stocks had jumped between 4 per cent-18 per cent on Monday after the exit polls.