India’s Mumbai Sensex closed up 1.6% higher and the Indian Rupee reached a four month high against the U.S. Dollar on Monday after a strong performance by the Indian opposition party fueled optimism among investors.
The results of the election position the Bharatiya Janata Party, which is one of India’s most pro-business political parties, to lead a coalition government next year after national polls are conducted.
Despite the good news, India has been one of the weakest performing emerging markets this year. The country has recovered from being on the brink of an economic crisis in the past few months.
Stocks suffered earlier in the year when U.S. bond yields jumped higher causing foreign capital to flow out of emerging markets. India is heavily reliant on foreign capital due to its large current account deficit, which is US$5.2 billion as of 2013.
This October, the IMF slashed its forecast of India’s growth from 5.6% to 3.8% for the fiscal year of 2013.