MUMBAI: Indian government bond yields dropped marginally in the early session on Monday as investor sentiment was boosted after exit polls signaled that Prime Minister Narendra Modi’s government will secure a third term with a wider majority.

India’s benchmark 10-year yield was at 6.9541% as of 9:30 a.m.

IST, following its previous close of 6.9809%. Earlier in the day, the yield fell to 6.9421%, the lowest level since April 8, 2022.

“The exit polls are better than what the market was estimating in terms of the number of seats for the current government and as expected, we have seen a gap down opening of around 6.95% and yields are expected to consolidate here,” a trader with a primary dealership said.

Most exit polls projected the ruling National Democratic Alliance (NDA) to win a two-thirds majority in the 543-member lower house of parliament, where 272 is needed for a simple majority.

The results of the general election will be announced on Tuesday.

India’s exit polls have a patchy record, which could curb investors undertaking more aggressive calls on the decline in yields. Traders said the government’s continuity will also be a major positive for the fiscal path.

India’s fiscal deficit for the year ended March 31, 2024, was 5.63% of gross domestic product, lower than its full-year target of 5.8%.

Still, the market awaited the full result for confirmation, as well as the Reserve Bank of India’s monetary policy decision due on Friday as the next major triggers.

India bonds not reacting to strong domestic growth, yields little changed

Michael Wan, a senior currency analyst, global markets research at Singapore-based MUFG Bank, expected risk assets to rally and bond yields to grind lower.

He said, “The fact that all exit polls estimate such a wide buffer in seats between the incumbent and the opposition indicates that it would probably take a monumental and universal statistical bias across all polling agencies for PM Modi to not return to power. This seems extremely unlikely to our minds.”