NEW DELHI : The Reserve Bank of India (RBI) has discussed contingency plans with the finance ministry and the stock market regulator to deal with any excessive volatility from election results to be unveiled on Friday, Governor Raghuram Rajan said.The RBI will also be ready to deal with any volatility in the rupee, Dr Rajan added.
Both the rupee and the Sensex have gained from heavy buying by overseas investors, who have pumped in billions of dollars in equities and debt on hopes of a revival in the economy.The partially convertible rupee jumped to a 10-month high of 59.10 per dollar on Thursday. The Sensex has added over 1,500 points since May 12, when exit polls predicted the Narendra Modi-led National Democratic Alliance to win a simple majority in elections concluded on Monday.
As of Thursday, markets are factoring in 250 seats for the NDA, which will be enough for a stable government, Arindam Ghosh, director of BlackRidge Capital Advisors told However, if the elections throw a hung Parliament and no combination gets a majority, markets and rupee are expected to crash amid foreign outflows.Jayesh Mehta, the country treasurer at Bank of America, told NDTV that if the election outcome does not mirror the findings of exit polls, the rupee could depreciate to 65-66 per dollar. It can even slump to the record lows at 68.80 witnessed in August 2013, he added.
Ritu Jain, managing director of investment bank Eos Capital Advisors in Mumbai, said the recent rally in Indian shares “has been largely in anticipation of NDA coming to power with a majority or near to majority.””In the event of NDA not coming to power, markets can correct by about 15 per cent or a little more.”Most investors were caught off guard in the past two general elections – in 2004 and 2009 – as opinion polls got it badly wrong. In 2004, the Sensex tanked after the NDA was voted out of power, while in 2009 the market hit circuit breakers twice after the Congress was voted back to power with over 200 seats.
“We have been conducting daily stress tests and are more than satisfied. Our risk management, payment and settlement systems are working fine,” said UK Sinha, chairman of market regulator Securities and Exchange Board of India.

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