Stock Market is sensitive to new information. India is a developing country and there’s always a news that needs to debate and discussed. Several things happen across the globe and most of them have direct or indirect impact on the stock market.
There are several recurring events which have a direct impact on the markets. Starting from Union budget, Repo rates, Fiscal policies, Commencement of new projects etc. but there is an event which comes for every 5 years and people in democratic India wait for it. Elections. I know you are also waiting for it. Even I’m curious about it.
Yes, Elections are very important for a country to elect their leaders. Because good leaders and government will change the direction of the country in either way. Similarly, these elections will have an impact on the stock market.
Investors closely monitor the elections as the outcomes can considerably affect market dynamics, and some investors may even be tempted to time the market in such cases
Changes in governments or political parties and ideologies can cause changes in government policies, economic priorities, and regulations, affecting various sectors and companies.
While elections create short-term volatility, the long-term effects are mostly shaped by the economic reforms and policies implemented by the ruling party. That’s the reason why we need to consider this. So, we at savart did in-depth research on this topic. Let’s start.
There’s a report from Jefferies, saying that “Indian Markets would plunge nearly 25% if the current ruling party lost its power. However, it might just be a projection, and none of us really know what is going to happen in the future. As projections are risky and often opinionated, it might be safer to look at how elections have impacted the Indian stock market historically. Before anticipating anything let us understand the past story.
For your reference here’s details of the election years so that we can understand the concept clearly.
But before we begin, let me clarify that the data which we provide, and analysis of the Sensex data is based on the historical events that took place and we are not biased to any political party.
| 1991 | INC |
| 1996 | BJP |
| 1998 | BJP |
| 1999 | BJP |
| 2004 | INC |
| 2009 | INC |
| 2014 | BJP |
| 2019 | BJP |
1. Market performance during the election period of 1991: Sensex touched 1000 points on July 25,1990. It is one year prior to the 1991 General elections. In the year 1991elections, the congress government came to power under the leadership of PV Narasimha Rao. In Jan,1992 which is six months after they came in power, they opened up economy by liberal economic policy it led Sensex to reach 2000 point on Jan 15, 1992.
Just within 40 days which is on 29 feb 1992 Sensex touched 3000 Mark in the wake of Market friendly budget. In the next 30 days, which is on March 30,1992, it touched the 4000 mark. This is because of the Liberal export –import policy. Now if we observe just in a short span which is one year prior to elections and year after election. Sensex has rallied from 1000 points to 4000 points. Which is a 300% gain. But after a few days a well-known scam came into the limelight, Sensex plunged and washed out the gains.
2. Market performance during the 1996 & 1998 election period: Between 1996 and 1998, political instability and economic problems impacted the market. Frequent leadership changes and the Asian Financial Crisis caused a drop in market confidence and economic decline. In February 1997, the market closed at 3651. By February 1998, there was no significant growth, and the market stayed flat. From August 1997 to February 1998, the market fell to 3622, resulting in a 6.5% loss.
3. Stable govt established in the year 1999
After the stable government established in the year 1999, Sensex increased 7% and rose for the next 3 months. NDA’s victory largely brought market stability, witnessing a rally in Sensex and an enhanced GDP growth rate of nearly 6-7%. Sensex touched 5000 points. If you observe the thing Sensex touched 4000 Mark in March 1992 but it took nearly 7 years to reach 5000 points.
Several other global factors including the IT boom helped Sensex to reach 6000 points on 11 feb, 2000. However, global events such as the 9/11 attack on USA and even domestic factors led to a significant market downturn with stock markets falling around 50%. In April 2003, the market closed at 2966 and by April 2004, it had seen an impressive 90.6% return.
4. Market reactions to the 2004 elections.
In the 2004 elections, the market faced a sharp decline, losing 15% in 2-3 trading sessions due to an unexpected UPA victory. After a few days the markets stabilized, and Sensex reached 7000 points after a year of elections in June 2005.
The market grown tremendously in the next years as well. The Sensex kept on hitting benchmarks. Markets started recovering from the crisis that occurred in 2008 and gained the past rally and reached the 21000 Mark in Nov 2010. Despite this, the market fluctuated due to prevalent scams during UPA’s second term. Investor confidence waned, affecting both domestic and foreign investments and resulting in reduced capital inflows.
6. 2014 NDA government came into power.
The NDA’s 2014 victory, led by the BJP, brought a resurgence in market optimism, reducing volatility to 9.1% from 17.96%. Expectations of economic reforms underpinned this sentiment.
If we look at the Sensex points data, on 24 March 2014, it was at 22000 points but just within the six months government formed under Narendra Modi leadership.
Sensex rallied 7000 points and reached 29000 points for the first time on 23, January 2015 and exactly in the month of March 2015 Sensex reached 30,000 Mark.
7. 2019 Elections and the market reaction:
The 2019 elections were a significant event, with the BJP securing another term. This continuity in governance was seen as a positive signal by investors, who anticipated ongoing economic reforms and policy stability.
Following the election results, the market experienced a surge. By November 2019, the Sensex touched 41,000 points, a significant milestone.
This remarkable rise in the Sensex from 34,915 in April 2018 to 41,000 by November 2019 showcases how political stability and the promise of economic reforms can drive market confidence and growth.
Today, the Sensex has reached around 70,000 points, reflecting a continued upward trend despite global and domestic challenges. This phase of consolidation and cautious optimism indicates that while the market remains resilient, investors are also carefully watching economic indicators and policy directions.
Outlook for 2024
An NDA win is likely to maintain the stability of the previous reforms and set the stage for newer initiatives for helping domestic businesses grow locally & globally as well.
On 3rd June Markets opened at all-time highs, the Stock market at a new all-time high; Sensex was above 76,500 for the first time, Nifty crossed 23,300. On June 1, 2024, exit polls were released and poll results suggesting a likely win for NDA. Markets reacted in an extremely positive manner.
Results will be declared on June 4th, 2024, If the anticipation of the investors and exit polls predictions come true, markets will react to it accordingly.
However, a win for the opposition alliance may spring a surprise and would be watched keenly by investors. Either way, it is difficult to predict market behavior, and this is why Savart recommends maintaining a staggered investment approach at most times along with a healthy cash position to be deployed during special market opportunities.