The correlation between general elections and the stock market has always been intriguing. While volatility is often observed around election periods, the long-term performance of the stock market has generally remained positive. However, alongside the positive trends, occasional negative deviations have also been witnessed.
For instance, history reminds us of the 2004 elections when opinion polls were indicating a BJP victory, but the market crashed post the Congress win, leading to nearly two years of bearish sentiment.
With the ongoing elections and heightened volatility in the market, let’s delve into how the market behaves during and after elections, and what investors can learn from history.
Pre and Post-election Market Performance
According to Motilal Oswal, examining the general elections since 1999 reveals an average 21% surge in the Nifty 50 index during the six months preceding the elections. This growth has ranged from 7% to 36% in the five previous elections.
You can observe the pre and post-election performance of the market index Nifty 50 in the image below:
According to Mint, statistics indicate significant activity among Domestic Institutional Investors (DIIs) at present. Until April 29, DIIs have invested over Rs 1,51,191 crores, while Foreign Institutional Investors (FIIs) have invested approximately Rs 317 crores.
However, Viral Shah, Senior Executive Vice President and Brokerage Head at 360 One Wealth, suggests that it is anticipated that both FIIs and DIIs will increase their activities post-election. If the current government returns to power, FII investors might also re-enter the market.
It has been observed that FII investors are investing significantly in the banking sector. Therefore, post-election, sectors like banking, financial services, and insurance (BFSI) could potentially benefit.
Predictions for the Future
Mint reports that typically, during the years of general elections, a unique pattern has been noticed in the Nifty 50. In the last 30 years, it has been observed seven times that in the first quarter before the elections, Nifty experienced a slight decline, but post-election results, there was a surge of at least 14%.
Similarly, this year witnessed a 5% correction in January followed by a downturn for two months. However, ICICI Direct anticipates that Nifty will maintain its momentum, and by June 2024, it could touch the level of 23,400, driven by sectors like banking, automobiles, capital goods, and metals.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The article is for information purposes only. This is not an investment advice.
*Disclaimer: Teji Mandi Disclaimer
