Indian markets slid on Tuesday as investors feared the ruling federal coalition would fall well short of a majority in parliament, heightening the prospect of a slowdown in economic reforms and foreign investment.
A huge loss in the Andhra Pradesh state election on Tuesday for a key ally of the coalition reinforced a belief that India will end up with a hung parliament, as indicated by exit polls ahead of the national election results on Thursday.
The benchmark Mumbai stock index posted its biggest daily points loss in nearly four years to finish at a five-month low, while the rupee fell to levels not seen since January. Bond yields, which move inversely to prices, hit two-month highs.
India's financial markets have been bracing themselves for an uncertain result since exit polls two weeks ago first pointed to a potential hung parliament, which could prove less effective at shaping up an already booming economy for further growth.
Foreign investment funds, having investing $4.0 billion in Indian shares since January, sold a net $205 million worth in five straight sessions through Monday
Then an exit poll released late on Monday offered the bleakest forecast yet for the ruling National Democratic Alliance (NDA), suggesting it might win as few as 230 seats in the 545-member lower house of parliament.
"Till about a month or so ago, there seemed to be a consensus the coalition would come back to power comfortably," said M.R. Madhavan, strategist at Bank of America in Singapore.
"But since then, exit polls have been forecasting lower and lower numbers, and yesterday's were the lowest yet."
The Mumbai share index fell 4.1 percent on Tuesday to 5,325.90 and has fallen more than 10 percent in two weeks, in which time shareholders have seen more than $27 billion of value washed away.
The 10-year bond yield closed little changed at 5.19 percent, having earlier risen to nearly 5.22 - a level last seen on March 9, and 10 basis points higher than Friday's close.
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