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Every General Election, Every Stock Market Change
HOW THE STOCK MARKET REACTS TO GENERAL ELECTIONS
Before the beginning of the 2024 general elections, there was strong public sentiment toward BJP comfortably winning a majority in the ongoing Lok Sabha elections, which was reflected in the burgeoning Indian stock market performance and future outlook.
However, with the opposition parties raising issues on high youth unemployment, alleged incompetency of local BJP Lok Sabha representatives, farmer protests, rural areas yet untouched by development, and controversies surrounding allied party leaders in NDA and the Agniveer scheme have strengthened speculations that BJP is unlikely to repeat its previous majority win of 303 seats. If BJP does not win majority seats (272 or more) this time around, it will be compelled to form a coalition government with other parties, placing severe restrictions on PM Modi and the ruling democratic party’s ability to continue with strong policy-making as executed in the previous two terms. As elections close soon on June 1, 2024, political mud-slinging and divisive campaigns run amok.
With such political uncertainty, stock markets are bound to reflect the same volatility as investor start to take a more cautious stance.
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To preempt the market movement around election results, pattern-spotting serves as a great predictability tool for assessing the market's reaction to general elections in the last few decades to help you - the investor - navigate the current volatility too.
STOCK MARKET PERFORMANCE UNDER GENERAL ELECTIONS IN INDIA
Here is a look at the historical impact of general elections on the Indian stock market.
1996 General Elections: The Nascent Market 🌱
The stock market was relatively nascent, with the Sensex and Nifty indexes newly introduced in 1986 and 1996, respectively.
In the 1996 general elections, no single party secured a majority, leading to the formation of a coalition government led by the Janata Dal-led United Front, with H.D. Deve Gowda as the Prime Minister.
Market Reaction: The Sensex closed at 3,261 points on May 15, 1996, the day of the election results.
1998 General Elections: BJP's Short-Lived Victory 🚀📉
The BJP emerged as the single largest party and formed the government with the support of allies, with Atal Bihari Vajpayee as the Prime Minister.
However, the government lasted only 13 months, and fresh elections were called in 1999.
Market Reaction: The Sensex closed at 3,892 points on February 16, 1998, the day of the election results.
1999 General Elections: NDA's Stable Government 🏛️💹
The Sensex closed at 4,505 points on October 6, 1999, the day of the election results.
The BJP-led NDA secured a majority and formed a stable government, with Atal Bihari Vajpayee continuing as the Prime Minister.
Market Reaction: The stock market reacted positively to the election outcome, with the Sensex gaining 136 points (3.11%) on October 7, 1999.
2004 General Elections: UPA's Surprise Victory 😮📉
Both, Sensex (BSE) and Nifty (NSE) were at an all-time high before the elections. Sensex was at 6,249 points on January 14, 2004, and Nifty (NSE) was at 1,963 points on April 12, 2004.
The election results on May 13, 2004, surprised many as the incumbent BJP-led NDA government was defeated, and the Congress-led UPA formed the government, with Dr. Manmohan Singh as the Prime Minister.
Market Reaction: Sensex crashed post-election results by 565 points (11.14%) on May 17, 2004, while Nifty crashed by 161 points (10.97%) on May 17, 2004.
2009 General Elections: UPA's Resounding Victory 🌟📈
Sensex volatility: The Sensex had a 52-week low of 7,697 points on October 27, 2008, and a high of 12,671 points on May 4, 2009, in the months leading up to the elections.
On May 16, 2009, the election results were announced, with the UPA securing a clear majority.
Market Reaction: The Sensex surged by 2,110 points (17.34%) in a single day, recording its biggest-ever gain, as investors cheered the stability and continuity of economic policies.
2014 General Elections: Modi Wave and Market Euphoria 🌊🎉
In the months preceding the 2014 general elections, the stock market was optimistic about the prospects of a stable government and economic reforms.
The election results on May 16, 2014, gave a clear majority to the BJP-led NDA, with Narendra Modi as the Prime Minister.
Market Reaction: The Sensex hit a record high of 25,375 points on the day of the election results, gaining 1,470 points (6.15%) in a single day. Nifty followed with a record high of 7,563 points on May 16, 2014, gaining 440 points (6.18%) in a single day.
The stock market continued its bull run post the elections, driven by expectations of economic reforms and increased foreign investments.
2019 General Elections: BJP's Resounding Victory Amidst Economic Concerns 🙌
The stock market was cautious in the run-up to the 2019 general elections, with concerns over the potential impact of election results on economic policies.
On May 23, 2019, the election results showed a resounding victory for the BJP-led NDA, with Narendra Modi securing a second term as Prime Minister.
Market Reaction: The Sensex surged by 1,421 points (3.75%) and Nifty surged by 421 points (3.69%) in a single day, as investors welcomed the continuity and stability of the government.
However, the stock market faced challenges in the following months due to domestic and global economic concerns, such as the slowdown in GDP growth and the US-China trade war.
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Key Insights and Takeaways 🔑
Expectedly, the Indian stock market has been significantly impacted by general elections, with election outcomes often leading to sharp movements in the market. 📊
The market generally favors a stable government with a clear majority, as it provides policy certainty and boosts investor confidence. 🏛️💼
Short-term volatility is common in the lead-up to elections, and investors should focus on the long-term fundamentals of the companies they invest in. 📜💡
The long-term performance of the stock market depends on various factors, such as economic fundamentals, global market trends, and government policies. 🌍💰
POSSIBLE SCENARIOS FOR 2024 GENERAL ELECTIONS 🔮
If the NDA wins: The stock market is likely to react positively. However, if the NDA falls short of a majority, the market may witness more short-term volatility. 📈📉
If India Bloc (Congress and its allies) wins: The stock market may initially react negatively due to uncertainty over policy changes. 😟📉 The coalition’s Prime Minister candidate is yet to be decided for now.
QUICK PREVIEW OF KEY POLICY DECISIONS OF MODI-LED GOVERNMENT
The stronghold of non-Congress parties in their territories fuels the probability of India Alliance winning and the rising anti-government sentiment. However, it would be ignorant for voters to become amnesiac to all the groundbreaking economic developments India has achieved under PM Modi’s two terms, a leader who also successfully led India out of economic woes triggered by the pandemic.
Goods and Services Tax (GST), 2017 💼 » Unified the indirect tax system in India, replacing multiple taxes levied by the central and state governments. Streamlined taxation and helped create a common national market.
Insolvency and Bankruptcy Code (IBC), 2016 📜 »
Provision of a time-bound process for resolving insolvency and bankruptcy cases. Improved ease of doing business and facilitated the resolution of non-performing assets (NPAs) in the banking sector.
Make in India Initiative, 2014 🏭 » Promoted manufacturing in India, attracted foreign investment, and created jobs, and propelled successful alliances with domestic and foreign companies to manufacture in India.
Digital India Program, 2015📱 » Improved online infrastructure, increased internet connectivity, and promoted digital literacy, transforming India into a digitally empowered society and knowledge economy.
Jan Dhan-Aadhaar-Mobile (JAM) Trinity 🏦 » Linked Jan Dhan bank accounts, Aadhaar (biometric identification), and mobile numbers to improve financial inclusion and enable direct benefit transfers. Reduced leakages in government subsidies and enhanced the efficiency of welfare programs.
Infrastructure Development 🏗️ » Increased investment in infrastructure projects, such as roads, railways, airports, and ports. Initiatives like the Bharatmala Pariyojana (road and highways project) and the Sagarmala Project (port-led development) were launched to improve connectivity and logistics.
Foreign Direct Investment (FDI) Reforms 💸 » Liberalized FDI norms in various sectors, such as defense, aviation, and single-brand retail, attracting foreign investment and boosting economic growth.
Startup India Initiative, 2016 🚀 » Promoted entrepreneurship and innovation by providing support and incentives to startups. This included simplifying regulations, providing funding, and creating a conducive ecosystem for startups to grow.
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