As the date of election results approaches, market volatility is increasing. Despite the excellent rally in the stock market over the past few years, investors are uncertain whether this rally will continue post election results. To shed light on this, Bloomberg conducted a survey indicating that if the BJP secures more than 303 seats in the general election, the rally is likely to continue.
Let’s explore how the market might react post election results by examining various factors.
How Do Election Results Affect the Stock Market?
Moneycontrol analysed the outcomes of the past five general elections, revealing that in most cases, the market has shown a positive trend!
Historically, the Sensex’s performance following election results has been varied. For instance, a month after the 1999 general election, the Sensex was down by 2.11%. After the 2004 election results, there was a 10.50% decline in one month. However, in 2009, the performance saw a 22.20% increase in a month.
Between 1999 and 2014, only 1999 and 2019 saw declines over a year, with other years showing excellent performance. The significant drop in 2020 following the 2019 election results was primarily due to the COVID-19 pandemic.
How Will the Market Perform Post-Election?
Considering various scenarios based on election results, global brokerage house Nomura has projected potential market reactions:
- If BJP Wins Around 400 Seats: The market is likely to react positively, with better performance expected from the financial, industrial/infrastructure, consumer discretionary, and PSU sectors. However, the IT services and healthcare sectors might underperform.
- If NDA Wins: Domestic sectors like industrial, infrastructure, and PSU might experience a sell-off. Conversely, banking, consumption, and pharma sectors are expected to perform well.
- If I.N.D.I.A. Alliance Wins: There could be a sell-off in the industrial, infrastructure, financial, consumer discretionary, and PSU sectors. On the other hand, consumer staples, pharma, and IT services sectors are expected to perform better.
What Does This Mean for Investors?
While election results can impact the market in the short term, long-term economic factors have a more significant influence. Historically, the market has generally been positive post-elections, which is reassuring for investors.
What’s Next?
Bernstein predicts that if the BJP returns with 330-350 seats, the stock market may see a short-term rally, potentially pushing the Nifty 50 past 23,000. However, higher valuations and profit booking might lead to a subsequent decline.
Additionally, Motilal Oswal Financial Services anticipates that if Prime Minister Narendra Modi returns for a third term, stocks in defence, infrastructure development, railways, and capital goods companies will likely surge.
However, Christopher Wood from Jefferies has cautioned that if the current BJP government doesn’t meet expectations, the Indian stock market could experience a potential downturn, though a 2004-like defeat for the BJP is highly unlikely.
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
