Bull Sculpture Bombay Stock Exchange
Indian stock markets hit historic highs on bets exit polls will show BJP majority. Reuters

Indian stock markets rallied to record highs in afternoon trade and the rupee struck a near 10-month high earlier, on anticipation that exit polls will predict the opposition Bharatiya Janata Party (BJP) and its allies will win a majority in the ongoing general elections.

A victory for the BJP-led coalition is widely expected to boost confidence and growth in Asia's third-largest economy. The BJP is widely seen as being more business friendly than the current Congress Party-led coalition government.

The benchmark BSE Sensex index was trading 2.31% or 530.31 points higher to 23,524.54 points at 14:48 hrs IST in Mumbai.

The NSE CNX Nifty share average was trading 2.25% or 154.55 points higher to 7,013.55 at 14:46 hrs IST in Mumbai.

The Sensex has gained over 15% in the last six months while the Nifty has surged some 16% over the same period.

Earlier on 12 May, the rupee strengthened to about 59.51 to the US dollar, its strongest level since July 29, 2013.

The rupee has gained some 16% against the greenback from last August's record low of 68.85.

Election Math

The BJP and its National Democratic Alliance (NDA) will need to win 273 seats in the 545-seat parliament to bag a majority.

Media organisations are to release the results of their exit polls post 18:30 hrs IST on 12 May, the last voting day in India's 36-day-long national elections.

Exit polls were completely wrong in 2009 and in 2004.

BJP May Win

Election results are due on 16 May and Macquarie Research has said that the markets are pricing in the BJP winning 230 seats, calling that its "base case" as well.

Macquarie, in a 12 May report, said "there is a clear anti-incumbency trend at the centre and BJP-led NDA is the only viable alternative".

Barclays Capital in a 9 May note said: "In India, the latest round of voter surveys indicates that momentum is with the Bharatiya Janata Party."

"The BJP-led National Democratic Alliance coalition has solidified its lead according to the latest surveys, and now looks poised to emerge as the largest coalition, displacing the ruling United Progressive Alliance coalition led by the Indian National Congress party.

"We expect economic reforms to resume following the elections, but the quantum of victory will likely dictate their pace and quality," the British firm added.

Optimistic investors have returned to India's $1.2tn equity market, amid forecasts that the BJP will win elections and deliver a government that can revive economic growth from a decade low, but analysts have advised caution.

Analysts told IBTimes UK that investors must tread with caution given that the current level of optimism does not correspond with the fundamentals of Asia's third-largest economy.