Indian Prime Minister Narendra Modi on Friday was formally elected as the leader of the National Democratic Alliance coalition, which won the most number of seats in the country's national election after his political party failed to win a majority on its own.

The 73-year-old leader, who will be sworn in as prime minister on Sunday for a rare third term, will now form a coalition government.

Modi’s Hindu nationalist BJP has governed India as part of the NDA coalition over the past decade, but this is the first time under his leadership that the party has needed support from its regional allies to form a government.

“This alliance of ours reflects India's spirit in its true sense,” Modi said after the BJP and coalition members backed him as their prime ministerial candidate. “We were neither defeated nor are we defeated ... it was an NDA government in the past, still is and will be,” he added.

Full results from India’s six week-long election, which began in mid-April, were released on Wednesday. The BJP won 240 seats, well below the 272 mark needed for a majority in a stunning upset. Together, the parties in the NDA coalition bagged 293 seats in the 543-member lower house of parliament.

Meanwhile Modi's political challenger, the INDIA alliance led by the Congress party, put up a stronger-than-expected fight, defying predictions of decline by doubling its strength from the last election to win a total of 232 seats.

Before Modi was formally elected as the NDA leader, local media reported that the two key regional allies which can make or break his coalition government – the Telugu Desam Party in southern Andhra Pradesh state and Janata Dal (United) in eastern Bihar state – were eyeing posts in important ministries, some of which the BJP have held so far.

On Thursday, the newly emboldened opposition ramped up pressure on Modi and the BJP. In a press conference, the Congress party's main campaigner Rahul Gandhi demanded a parliamentary investigation into what he called the “biggest stock market scam,” alleging that Modi and other top BJP ministers misled retail investors who ended up losing money.

India's two main benchmark stock indexes hit new highs on Monday after exit polls predicted a BJP sweep, but dropped sharply on Tuesday to close down more than 5% as early vote figures trickled in.

In television interviews last month, Modi and Home Minister Amit Shah said the markets would surge when results were declared on June 4.

The BJP denied Gandhi's accusations of a ploy between the party and exit pollsters, and accused the Congress leader of trying to discourage investors. (AP)