When elections approach, investors often wonder: what will happen to the stock market?
They keep a close eye on elections because the results can significantly influence market trends, with some investors trying to time their moves accordingly.
Let’s explore how past elections have affected the Nifty-50 index and what we can expect this time around.
2004 elections – The surprise UPA win
The BJP-led NDA government’s extensive reforms since 1999 raised expectations for the return of the Atal Bihari Vajpayee-led administration to power. Opinion polls also predicted the re-election of the incumbent government. However, in the run-up to the counting date, markets fell due to the fear of unstable coalitions. The final results indicated a hung parliament with the Congress-led UPA in the lead. The markets continued their correction in the aftermath of the elections due to concerns over the continuation of previous developmental policies.
2009 elections – Aftermath of the Global Financial Crisis
Indian equities, like those worldwide, were in recovery mode following the Global Financial Crisis. The rally preceding the election can largely be attributed to this broader economic context rather than to election fever. The Congress-led UPA government exceeded expectations significantly to form the government for the second time. This vote of confidence was rewarded by the markets, which rallied ~17% intraday.
2014 elections – Narendra Modi’s Emergence
With issues like high inflation, economic slowdown, corruption allegations, and a lack of jobs among others, there was a strong anti-incumbency wave against the UPA government. The rise of Narendra Modi on the national level, along with the expectation of strong economic and industrial policies, led to an anticipation of a sweeping victory for the BJP-led NDA. With the election results stronger than expected, the markets continued their upward trajectory.
2019 elections – NDA consolidates power
It was widely anticipated that the Modi government would return for a second term, and with a larger margin. This anticipation led to a strong market rally in the lead-up to the result day. While the actual results did surpass expectations in terms of the margin of victory, the market rally fizzled out, as it was already expected that the NDA would return to power with an absolute majority.
How will the market react this time?
This time around, the opinion polls strongly favour the BJP-led NDA. While we are witnessing an uptick in the equity markets leading up to the results, a decisive victory for the NDA appears to be already factored into the prices. A victory, even a resounding one, for the BJP may not necessarily result in a significant equity rally. However, if there are surprises to the downside, such as a weaker-than-expected performance by the NDA, we may see the markets falter.
I hope you found this piece interesting. If you have any thoughts on this subject, do write back to me.
Till the next time,
Vijay
CEO – InCred Money
