Counting of votes in the Indian general election has started with results expected within a few hours. Exit polls have predicted a comfortable win for prime minister Narendra Modi and his Bharatiya Janata Party (BJP)-led alliance, and that was borne out by early trends in the counting.
Television channels said very preliminary trends in about 350 constituencies showed the BJP alliance leading in about 200 seats with the main opposition alliance leading in 67-85 constituencies. To win, a party needs to win at least 272 seats.
"The strong rupee and stock market rally at the start of this week after the exit polls showed Modi retaining power have petered out subsequently, though they left market performance up on the week," ING said in a research note.
"While the credibility of exit polls remains questionable, voter discontent in the BJP stronghold states makes this election highly unpredictable." But it added: "Our base case remains one of the Modi faction staying in power for a second term." Prime Minister Narendra Modi at an election campaign rally in New Delhi earlier in the month.
The BSE index closed 0.36 per cent higher on Wednesday at 39,110 points. The broader Nifty index was up 0.25 per cent at 11,738 points.
The rupee was unchanged at 69.66 to the dollar on Thursday with traders expecting the currency to track the results.
Rupee levels to watch
DBS said the yield on the benchmark 10-year bond was likely to ease to the weaker end of the 7.25 per cent-7.35 per cent range, if results mirrored the exit poll.
"On the contrary, weak support for the ruling regime will be construed as a negative risk event, sending yields towards 7.4 per cent," it said.
Modi is seen most likely to win the election, promising policy continuity, but economists say the task before the new government is immense as growth slows and financial markets clamour for decisive and meaningful reform.
"We are facing a liquidity and credit crisis - two separate issues which need to be handled differently," said Rajeev Pawar, group head for balance sheet management and investments at Edelweiss Financial Services in Mumbai.
"Just cutting rates or a new government will not bring rates down," he said in the Reuters Trading India chatroom.
Arguing for a sovereign bond issue by the government, he said: "Jobs need to be created. Jobs lead to income and consumption. But it's easier said than done. To revive the economy you need money and the government is already deeply in debt." Rahul Gandhi, president of the main opposition Congress party, after casting his vote at a polling station in New Delhi on 12 May.
The Mint newspaper said much needed to be done to convert the enthusiasm in financial markets to the real economy, including addressing faltering consumption.
"The crisis with India's non-banking financial companies is still unfolding and could put the financial system through more pain," it added. "Jobs remain worryingly scarce."
The new government's priority is likely to be on reforms on land, labour, privatisation and export promotion, Goldman Sachs said.
However, the Control Risks consultancy said: "Do not expect him (Modi) to carry out a wholesale privatisation of state-owned banks or loosen political control over lending decisions (which led to the debt crisis to begin with).
"At the same time, increased pressure over rural distress and unemployment will stoke Modi's economic populist instincts, which will likely see an increased focus on rural spending and handouts aimed at supporting small and medium-sized enterprises."
As election dust settles, jobs, trade, security high on government's to-do list.