The Indian stock market experienced its most significant daily drop since March 2020, as the coalition of current Prime Minister Narendra Modi is predicted to lose its majority in Parliament.

The Nifty 50 index, which comprises the 50 largest Indian companies by market capitalization, closed down by 5.9%, marking its worst performance since March 23, 2020, when it plummeted by 13%. This decline more than reversed the 3.3% gain from Monday’s session.

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US-based investors are expected to witness heightened volatility on Tuesday for exchange-traded funds (ETFs) tracking Indian stocks.

The iShares India 50 ETF (NYSE:INDY) was down more than 6.6% minutes after the U.S. market opened, while the Invesco India ETF (NYSE:PIN) fell by 6.7%.

This is the second negative reaction by emerging market assets following election results this week. On Monday, the Mexican peso and stocks saw a violent sell-off after Claudia Sheinbaum‘s landslide victory in the presidential elections.

India Now Faces Political Uncertainty

Narendra Modi has served as Prime Minister of India since May 2014. In the previous 2019 elections, his party, the Bharatiya Janata Party (BJP), secured 37.36% of the votes, which, along with its coalition, achieved a large majority in Parliament.

So far, the BJP coalition has obtained 239 out of 543 seats in the Lok Sabha, India’s Lower House, losing 18 seats compared to the 2019 elections and falling short of the required majority of 272.

Furthermore, this outcome is a significant setback for Modi, who had aimed to secure 400 seats during his campaign.

“A Modi 3.0” will still happen, albeit with a slimmer mandate and with help from allies, according to DBS Bank Economist Radhika Rao, as reported by Bloomberg.

As reported by The Times of India, Rahul Gandhi, the face of the opposition and would-be prime minister, said the preliminary results show that India does not want Modi.

“People's clear message to PM Modi and Home Minister Amit Shah is that we don't want you to run the nation,” Gandhi said.

The final Indian election results are expected to be announced on Tuesday afternoon.

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Indian Stocks Tumble The Most Since March 2020 With Modi's Party Set To Lose Majority