By Avantika Chilkoti 

Indian markets cheered Monday as exit polls suggested Prime Minister Narendra Modi is set for another five years at the helm of Asia's third- largest economy.

The benchmark Sensex index rallied more than 3.5% on Monday on pace for its best day since September 2013, while the rupee gained 1.1% on the U.S. dollar.

David Cornell, fund manager at London-based India Capital Growth Fund, which has around $145 million in assets, is cautious about the results of the preliminary polls but says the Modi government has succeeded in restructuring aspects of the Indian economy in a way that has pleased investors.

"The electorate thinks Modi is the best person to help India to catch up with its peers across Asia," he said.

Voting in the nation of 1.3 billion people continued for weeks and early exit polls trickled out Sunday as the final ballots were cast. The surveys, which have proven incorrect in the past, suggest Mr. Modi's ruling Bharatiya Janata Party and its allies could take over 300 of the 543 seats in India's lower house of Parliament. The official count will be released Thursday.

Among the biggest winners on Monday were the country's private- sectors lenders. Shares in Yes Bank and ICICI Bank rallied 8.4% and 5.3%, respectively. Meanwhile, global car maker Tata Motors, one of the market's most liquid stocks, gained 5.6% and refining group, Indian Oil Corporation, was up 5%.

The preliminary results come as global markets have turned volatile on the back of rising trade tensions between the U.S. and China. For some investors, the Modi government leaves India positioned to gain if multinational businesses turn skittish about their presence in China.

"It may start to look like quite a good alternative to a mercantilist tiff between two of the largest economies in the world," Mr. Cornell said.

Mr. Modi swept to power in 2014 pledging to revive growth and fight corruption, following a decade of rule by the Indian National Congress party. The stock market has risen sharply under his tenure, even if his record has been mixed.

The benchmark Sensex index has gained over 95% since mid-May 2014, when Mr. Modi came to power. The S&P 500 has gained around 50% over the same period.

His best-known policies include a new goods-and-services tax and the decision to abruptly invalidate more than 85% of Indian currency in circulation as part of a push against corruption. Both policies suffered from chaotic introductions.

The Indian economy grew 6.6% in the final quarter of 2018 compared with the year earlier, the slowest pace in over a year and down from 7% in the previous three-month period.

Some analysts were surprised by the extent of Mr. Modi's lead if Sunday's exit polls are correct. A win would represent continuity to markets, rather than a sign that major new reforms are coming.

Mr. Modi's 2014 victory was "totally different," in that it represented a change of parties, said Kunal Desai, a fund manager at Mobius Capital Partners, which specializes in emerging markets.

Mr. Modi's promises for a second term don't include any obvious big- bang overhauls. They pledge support for India's population of agricultural workers, increased infrastructure investment and more youth jobs.

A key risk for investors is geopolitics. Analysts say voter support for Mr. Modi stepped up after Indian warplanes bombed Pakistan for the first time in almost five decades in February, amid tensions between the nuclear-armed neighbors.

Write to Avantika Chilkoti at Avantika.Chilkoti@wsj.com

(END) Dow Jones Newswires

May 20, 2019 07:03 ET (11:03 GMT)