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.