NEW DELHI - India's Congress party was expected to appoint key reformers to the new cabinet as financial markets soared on Monday on hopes its sweeping election win would herald a strong coalition government.
Prime Minister Manmohan Singh, whose coalition is just 10 seats short of a parliamentary majority, submitted his resignation to President Pratibha Patil, a formality that sets in motion the process of forming a new government.
Congress's strong showing means reformers will almost certainly be named to key ministerial portfolios, including finance and trade. The ministers should be named this week.
I don't think they will simply look to accommodate old hands; they will try and get specialists for jobs such as finance because this is a tough environment, said Sanjay Kumar, fellow at the Center for Study of Developing Societies.
Plus, they will be keen to show they can meet the high expectations of the markets, of the people.
Fresh reformist faces may also join the cabinet for the first time, including Rahul Gandhi, heir to the powerful Gandhi dynasty and seen as pushing a new generation of leaders into Congress.
Among the names mentioned for the post of finance minister were Montek Singh Ahluwalia, deputy chairman of the Planning Commission and Foreign Minister Pranab Mukherjee.
Reformists held key posts in Singh's outgoing coalition but were shackled by its communist allies, who blocked measures like the sale of stakes in some state firms and raising the foreign investment limit in the insurance sector.
Singh's coalition has now bagged 262 seats, just 10 seats short of a majority in the 543-member lower house, raising hopes that a strong government, unencumbered by difficult allies, would push reforms to boost growth in Asia's third-largest economy.
While Congress fell short of forming the government on its own -- no single party has won an outright majority in India in a quarter-century -- Singh is expected to become the first prime minister to return for a second term since Indira Gandhi, who was assassinated in 1984.
The news buoyed India's main stock index, which shot up more than 17 percent, triggering the upper-limit circuit breaker twice and shutting the market for the day.
The 30-share BSE index closed early at 14,284.21 points, its biggest intra-day percentage gain in 17 years.
The rupee soared more than 3 percent to five-month highs against the dollar, marking its best one-day rise in more than a decade.
We believe the election verdict could be game-changing for India, as it enhances the scope for significant medium- and longer-term reforms that will boost sustainable growth, said Rajeev Malik, Singapore-based economist at Macquarie Securities.
Benchmark bond yields dropped as the outcome encouraged foreign investors.
Congress is expected to seek the support of small parties or independents to create a house majority. The rival bloc led by the Hindu-nationalist Bharatiya Janata Party (BJP) won 159 seats, much less than it expected.
Congress leaders will meet on Tuesday to officially endorse Manmohan Singh as prime minister, after which the party will meet its coalition partners to decide on potential new allies.