Market Watch: Forecasting Post-Election Market Trends

Summary

As voters prepare to cast their votes, market analysts often look for clues as to how the outcome of the general election, which will determine India's leadership for the next five years, might effect public opinion. elections are most crucial part for any economy as well as market trends always depends on the elections.

Overview

While voters get ready to cast their votes, market analysts look for hints of how the general election’s outcome, which will define India’s leadership for the following five years, may precursor public opinion. It is proven that election results in the past have played a role in affecting market actions. Thus, the market dropped in 2004 when the BJP lost power, and subsequently, in 2009, it grew as the Congress party returned to office. Likewise, the prediction of Modi’s leadership in 2014 caused the market to increase before the election. The Indian stock market, namely the Sensex and Nifty indices, displayed intriguing trends before and after elections from 1980 to 2024. Historical data indicates that there may be significant differences in the stock market's performance before and after election results.

A brief history of the Indian stock market before and after the elections

Historically, the Sensex and Nifty indices usually report returns in the lead-up to most election results. The only differences occurred in 2004, where the indexes produced worse results than indicated. However, the three years preceding the election in 2009, 2019, and 2014 that followed, both indices produced returns from the announcement of the election results. The 2009 election period reigns supreme as the most productive. In all cases, regardless of any minor volatility, both the Sensex and Nifty always indicate gains during the election aftermath. Understanding the factors behind elections always guides the market.

Before the elections, many factors need to be considered by investors, such as the impact of policy changes, opportunities specific to any given industry, or the likelihood of the rupee being worth more due to the inflow of foreign capital. There may be short-term volatility around elections, but should be maintained on long-term investing goals; practical or rational feelings should not be reflected in market feelings when a market goes down, for example. Stock market investors, for instance, should consider the importance of taking action immediately before the elections, or the distinction between short-term volatility and long-term value.

Winning Party and Market performances

2004: Two days after the election results, the market had a 20% decline due to the National Democratic Alliance's (NDA) unexpected defeat.

2009: Before and after the election results were declared, the Sensex and Nifty 50 showed strong rises, signalling the victory of the United Progressive Alliance (UPA).

2014: The Indian financial markets saw a significant upswing before the announcement of the election results, with the Bharatiya Janata Party (BJP), spearheaded by Narendra Modi, becoming triumphant.

2019: Although the BJP, led by Narendra Modi, emerged victorious in the elections, the market's reaction was somewhat subdued due to global tensions and slow economic growth.

The Indian stock market, like the Sense and Nifty 50 indexes, shown any positive gain following the late general election. A Sensex and Nifty 50 produced good returns from the day after election results till the finish of a corresponding calendar year in each of four previous general elections.

Noteworthy, an unexpected defeat of a National Democratic Alliance in the year 2004 has caused a notable market fall that lasted for two days, losing nearly 20% of its value!! Regardless of this, other events—such as the nomination of Manmohan Singh as the premier minister—boosted investor's confidence and produced profits for the remainder of the year 2009 was a highly remarketing year, with both indexes rising by more than 40% May 18, the first trading day following election results, and December 31, 2009. Despite the earlier election year, in 2019, with not many impressive market gains of around 4-5%, the Indian stock market always shows resilient performances post-election.

Some key points

Elections have historically had an impact on market movement, with moves occurring both before and after election outcomes! Even if the surprise election results would cause some short-term volatility, the markets would stabilise and show positive returns in three to six months.

 Stocks become more attractive after election results, increasing medium-term returns when there are market corrections.

The financial services industry always does well in election years! During several election cycles, the performance of other sectors varies. The advice given to long-term investors is to concentrate on the fundamentals and take advantage of market volatility. SIPs have generally produced more consistent returns, regardless of election cycles. During election seasons, valuations act as a compass for investing decisions.

How does one decide what to buy or sell?

While deciding if to buy or sell a corporation, investors ponder the news and events of the past several days. Folks tend to buy a company's shares when they release good news because of positive market feelings, and vice-versa. For example, the Airports of India indicating the Adani Group maintenance job over Jaipur International Airport suggests the business is growing and becoming more strong. This causes markets to view Adani Group's shares kindly, increasing demand and share prices. Also, a rise in corporate taxes by the Indian government is likely to create market nerves and a general decrease in stock prices.

Election is one of the most turbulent times for the stock market due to the uncertainties it brings. Alike to differences in the economy, political event like elections and legislative changes has a big effect on the stock market. It is widely believed that the stock market is rising in reply to favourable election outcomes for the incumbent government since it implies political stabilizes and vice versus. However, there are a variety of other explanations for why elections affect stock market valuations. Let us look at the factors that affect the relationships between stock markets and elections.

Sectorial impacts and trends before and after elections

The banking, consumer durable, and information technology industries all performed well after the 2019 Indian general election. These sectors consistently ranked in the top five lists of the best performers after the polls, regardless of the trend before the elections.

Poorly impacted sectors after the last general elections

Oil and gas: This industry underperformed the most, returning a negative 5% in 2023.

Energy: In 2023, this industry underperformed as well, yielding 1% negative returns.

Banks: In 2023, the banking industry did 8% worse than the frontline indices.

Commodities: The commodities sector underperformed the frontline indices by 2.1% in 2023

If the BJP forms a majority government from afar, with a 70% chance, then according to their budget, the sectors with growth prospects are capex and infra-related stocks, and banks because whenever capital expenditure occurs in any economy, it has the most positive impact, small-cap and mid-cap segments because they perform well when there is strength or a boost in the market, and domestic markets.

If the winners have a more comprehensive plan for economic growth over the next five years, stock prices will rise in response to optimistic market sentiment. If political parties appear to be getting their way with confusion and contradictory programs, stock prices will fall and market sentiment will be affected.

The uncertainties surrounding the election and post-election period have a significant impact on several industries in addition to the stock market as a whole. The real estate and infrastructure stocks will rise if the winner decides to concentrate on building the nation's infrastructure, for example.

 the stocks of the real estate and infrastructure industries will climb.

If the winning party's election manifesto includes policies that could hurt the pharmaceutical industry, the stock prices of pharmaceutical companies will fall. 

His 2019 election experience where the BJP and his NDA won more seats than his 2014. The BJP's vote count increased from 282 to 303, while the NDA's increased from 336 to 353. The BJP also expanded its sphere of influence from western and northern India to eastern India. Despite this, in the three months after the election, the market dropped 6%.

Manifesto comparisons 

BJP ( Sankalp patra )

Growth and jobs: The BJP is committed to continuing its current growth strategy to make India the third-largest economy in the world.

 Infrastructure development: Make in India scheme, Production-Linked Incentive (PLI) scheme and promotion of renewable energy are some of the initiatives highlighted by the party as important for infrastructure development. 

Taxation and Compliance: The Bharatiya Janata Party's manifesto emphasizes the need for a simpler tax system and aims to curb tax terrorism by ensuring law enforcement follows the letter of the law. 

Competition and Intellectual Property Rights: To maintain a competitive economy and protect intellectual property rights, the party is committed to strengthening the Competition Commission of India.

 Automation and Artificial Intelligence: The Bharatiya Janata Party's manifesto calls for accelerating the use of robots, AI and other technologies to create new employment possibilities while also securing vacancies in industries that use traditional technologies.

Congress ( Nyay patra )

Doubling GDP: Focused on rapid growth and wealth creation, the Congress has promised to double India's GDP over the next decade.

Welfare and Employment: Over the next decade, the party aims to ensure the welfare of the poor by lifting 22 million people out of the poverty line and giving them opportunities for work, housing, healthcare and education.

Infrastructure Building: The Congressional Plan promises to gather money from both the government and businesses to build better roads, bridges, and energy sources like solar and wind power.

Tax Rules: The party wants to stop unfair tax practices, make companies pay their fair share of taxes faster, and make sure tax collectors follow the rules.

Using Robots and AI: The Parliamentary Plan wants to use robots, smart computers, and other fancy tech stuff to create new jobs and still keep older industries going.

Market performance

Historical developments in the market during the election period

Election seasons have historically seen an increase in market activity and investment interest in India. This happens because people are insecure and have expectations about the government's next move. Historical data analysis identifies a few key tendencies.

the markets do pretty well around election time because things are stable politically, and there's hope for more good economic plans.

When we look at numbers from past elections, we see that market indexes often go up in the six months before an election. This occurs as a result of investors beginning to arrange their holdings in a way that they believe would profit from the winners they anticipate.

The main focus is on building better infrastructure, including Made in India programmes, Production-Linked Incentive (PLI) plans and renewable energy projects. It also plans to simplify taxation to discourage unfair tax practices and ensure law enforcement follows the rules. The focus is on protecting intellectual property rights and promoting competitiveness.

Promote the use of automation, robots and AI to create new job opportunities.  Congress' economic plan emphasizes rapid growth and wealth creation and aims to double India's GDP over the next 10 years. It aims to end poverty by providing new jobs, housing, health care and education to 22 million people. Highlighted the need to raise public and private financing to build new infrastructure, especially green energy. He promised to eradicate "tax terrorism" and rationalize the corporate tax system. Creating opportunities for traditional technology industries while promoting the use of automation, robotics, and artificial intelligence. Explained the ``Navi Sankalp Economic Policy'' which aims to build an economy that is fair, just and equal for all.

Conclusion

Government decisions determine the growth of our economy and influence the performance of major stock market indices like Sensex and Nifty. When governments set policies, they set rules for managing money, what kinds of taxes are paid, and what companies get. All these factors influence the attitude of investors, how companies see the future, and whether the market as a whole is stable or not. Good policies improve our economy, which means our stock markets, like the Nifty, go up. However, if policies are not clear or in our favour,  the market may be disrupted and growth may be hindered. So for everyone to live well and expand our markets, government policies must fit our larger economic goals.