CNBC's Inside India newsletter: Could markets sink even if Modi wins?

India will be counting its political winners and losers in the coming days after the final phase of voting for the General Election concludes.

Separately, the stock market will also deliver its verdict when markets open on Monday.

Although the counting of ballots will only begin on June 4, exit polls by local media outlets are likely to pour in soon after voting finishes on Saturday.

Nervousness among investors over the results has meant that the India VIX index, the market's so-called fear gauge, has shot up by more than 135% since its April lows.

Investors are concerned that the government will be held back from implementing major economic reforms without a substantial victory for Prime Minister Narendra Modi's ruling BJP.

While the BJP-led coalition occupied nearly 350 seats — more than 60% — in the last Parliament, India headed to the polls with markets expecting the incumbents to win a record 400 seats.

A large majority would allow Modi to push through amendments to the constitution and reform land acquisition and labor laws, which analysts say are crucial for speeding up India's economic growth.

Traders pushed the benchmark NIFTY 50 index to an all-time high last week, closing above 22,967 points, hoping the election results would be as expected.

"With the index reaching new all-time-highs, the market is increasingly pricing out the risk of a negative surprise loss for the BJP-led coalition," Bank of America analysts said in a recent research note.

They suggest that the equity options market expects stocks to move — up or down — by 4.5% on the first trading day after polls close.

That would also suggest that reports of low voter turnout and close contests in some areas, worries that initially drove up the India VIX, have been set aside.

"While the BJP's talk prior to the election of securing 400 seats was probably more political hubris than a realistic aim, it did enter the election with the largest single-party majority in almost 40 years," said Bradley Saunders, assistant economist at Capital Economics.

"What's more, the BJP performed well in state elections at the end of last year. Viewed in that light, the BJP will have had to have lost a lot of goodwill in a short amount of time for it to not secure another parliamentary majority."

In a note to clients, Saunders also pointed to data from the Election Commission, which shows that while the turnout is lower than the elections in 2014 and 2019, "it is in line with the historical average."

However, some equity strategists point out that even a landslide victory for Modi's BJP could potentially sour the stock market. A classic case of "buy the rumor, sell the news."

"We see a short-term breach of the 23K nifty target, but a swift profit booking brings it back below that level," said Bernstein's strategist Venugopal Garre.

"Continuity of power was known to equity markets, which is why we had a rally in Nov/Dec last year — playing again and again on the same theme leads to absurd outcomes for valuations — hence, we believe the focus will eventually return to macro, earnings growth, reasonability of valuations," Garre added.

Temperatures hover at record highs as heatwave grips the country. A record heat wave has engulfed Delhi and areas in the country's northwestern and central regions, with temperatures hovering near 50 degrees Celsius (122 degrees Fahrenheit) throughout the week. The Delhi region also recorded its first heat-related death of the year, Reuters reported citing local media.

S&P hikes India's sovereign rating outlook to positive. The credit rating agency said the country's rapid economic growth was having a constructive impact on its debt profile. Fitch Ratings also said that the recent $25 billion dividend from the central bank to the government would lower the budget deficit next year — a positive event if the deficit continues to fall in a sustainable manner.

Kolkata Knight Riders win the IPL. Sunrisers Hyderabad didn't stand a chance in the final match over the weekend. SRH were all out for 113 in the first innings, the lowest-ever total in an IPL title clash. The Knight Riders chased the easy target with eight wickets to spare.

Indian stocks fell by more than 2% this week. The decline reversed last week's gains in the Nifty 50. The index has risen 3.43% this year.

The benchmark 10-year Indian government bond yield stayed relatively flat, with a yield of 7% on better-than-expected budget deficit reduction.

On CNBC TV this week, veteran emerging markets investor Mark Mobius said a BJP landslide win would make him a "super, super bull" on India. He also named the sectors he is most bullish on.

Meanwhile, Gautam Chhaochharia, head of global markets for India at UBS, said foreign investors are in a "wait and watch mode" ahead of India's election results despite economic fundamentals looking "very, very strong."