Update


Elections and Stock Market

Article by Balaji Rao D G

Election fever has gripped the nation and also the stock markets. There is no doubt that sentiments precede fundamentals in stock markets, what the market participants think or perceive is what we get in the market. Every election time the market flutters and it is extremely difficult and also futile to predict the direction in which the market may move. If you expect the market would turn bearish ahead of the election, you could be wrong and if you expect the market would rise before the election, even then you could be wrong.

Let’s see some statistics of how Sensex performed over the past election years since 1980. Three months pre-election and three months post-election performance has been tracked and presented herein :

INDIAN ELECTION IMPACT ON MARKETS (INDEX – SENSEX)
Election Years Index preceding 3 months Index succeeding 3 months
Market movement % Change Market movement % Change
1980 Jan 6 th - - - 123 128 4%
1984 Dec 28 th 265 271 2% 271 353 30%
1989 Nov 26 th 733 689 -6% 689 676 -2%
1991 June 15 th 1168 1270 9% 1270 1885 48%
1996 May 7 th 3367 3725 11% 3725 3515 -6%
1998 Feb 28 th 3659 3622 -1% 3622 3686 2%
1999 Oct 3 rd 4898 4445 -9% 4445 5205 17%
2004 May 10 th 5590 4760 -15% 4760 5192 9%
2009 May 13 th 9465 12158 28% 12020 15518 29%
2014 May 12 th 20448 23551 15% 23871 25916 9%
2019 Feb 23 rd 35871 ?? ?? ?? ?? ??

Note : The dates are from 3 months prior to the election result date and 3 months post-election date from the date of result

It can be noticed that there has been no specific pattern the index has behaved in any particular pattern over these years. The pre-election heat starts about three months prior to the election result and usually dims in the ensuing three months before stabilizing. However, post-three months after the election the index has been positive since 1998. It would be exciting to see if the same momentum sustains this year as well.

Interestingly, the two times market has performed exceedingly well in the last 25 years has been during 1991 and 2009 and that was due to India being opened-up for globalization during the former year and during the latter year after a terrible bear period market was waiting for some good news to rise and recover. Congress-UPA 2 coming to power with full majority was well received and Sensex posted one of its best performances.

The next best market performance happened during 2014 when the BJP-NDA government swept the elections. Not only did the market was positive for the first three months post-election, the bull run continued into the next election – 2019.

The current rally in the Sensex (since Feb 23rd till 22nd April) has offered 9% absolute returns which may have factored-in the BJP-NDA government’s second term, though one will have to wait for 23rd May, the D-day for the country as well as the markets.

But investors should not be deterred by such events in the market nor should they make any change to their investment decisions. Market loves and lives because of events, news and rumors since trends are formed only out of such events and in the market trend is your friend.

Investors should stay their chosen investment duration and leave for the events to make its noise that dies down eventually and market will stabilize before it gets ready for another set or series of events.

SHARE: