Elections And Indian Stock Market Swings: Decoding The Share Market Since 2009

The stock market and investors react with much more vigour to the expected economic policies and the anticipated growth direction for the domestic economy than just the leaders in power

Elections typically bring a period of high uncertainty regarding the next government for the country and the policy framework. The investors become jittery and the markets react to every campaign promise and allegation. This uncertainty often leads to an increase in volatility in the market and stock prices tend to fluctuate more than usual. 

Market Stability And Foreign Investors

Typically, you might assume that a win for the ruling government would help promote stability and optimism in the stock market. However, things are not so simple. The stock market and investors react with much more vigour to the expected economic policies and the anticipated growth direction for the domestic economy than just the leaders in power. 

Investors keenly observe party manifestos to understand the policy proposals of parties and see how the leaders plan to act on the key sectors of the economy such as infrastructure, renewable energy, healthcare, education, manufacturing, etc. Market participants also clock the proposed regulations in different sectors anticipating a dip or surge in economic activity. 

Foreign investors are also influenced by the election sentiment. A government with investor-friendly policies might seem more lucrative for foreign players, while one with a protectionist attitude might be a cause of concern for global investors. 

Indian Stock Market During Recent Elections

Now that we understand how markets feel the effects of elections in the campaign, voting, and result periods, let’s see how Indian stock markets have fared in the recent elections and their reaction to the exit polls during these events. Exit polls, notably, are surveys done by several agencies to predict the outcome of the elections. Several members of the voting population are typically asked for their vote preferences and the data is then compiled and analysed to figure out a probable result for every constituency. While these polls do provide an early insight into the election results, they can often be misleading or inaccurate as well.

Expert Opinion

Elaborating on the stock market pattern during the recent election months, Gaurav Goel, SEBI registered investment advisor, said, "Foreign Institutional Investors have been the first casualty as they exited in large numbers during this period. While domestic investors, institutional as well as retail, insulated the stock markets from their departure efficiently by pumping in large sums of money, it was not enough for the large cap benchmark indices and bank nifty to post positive gains in the month of May. Nifty 50 lost 0.33%, Sensex declined by 0.70% and Nifty bank was lower by 0.84%. Most of the other developed economies and other emerging peer economies fared much better during the same period. These numbers are not big to rattle investors but the volatility index in the market certainly was. India VIX, barometer of volatility levels, gained a massive 91% in last one month to closes at 24.60 in today’s trading session. However, it should be noted, that volatility during general elections tends to skew upwards most of the times and must not be taken as an exception."

2009 Elections

The exit polls during the 2009 General Elections gave a mixed result. The stock market during this period was already recovering from the 2008 crash in the global economies and was inching higher. Reacting to the exit polls, the market exhibited mixed signals as it slipped but managed to remain above the key moving averages. The results which declared the UPA coalition as the winner resulted in a 17.74 per cent increase in Nifty.

2014 Elections

The 2014 General Elections saw exit polls predicting a victory for the Bharatiya Janata Party, led by Narendra Modi. The market during the time was trading near fresh peaks and inching higher. The exit polls led to a positive close for the markets, while the actual results triggered a strong rally. However, the indices slipped before settling in red, but the uptrend continued for some time after the results.

2019 Elections

The exit polls during the 2019 General Elections suggested a clear victory to the ruling NDA coalition, led by PM Narendra Modi. The markets reacted strongly to the predictions and after the results were declared, the investors saw major volatility in the indices for some period.

2024 Elections

The exit polls for the 2024 General Elections were released over the weekend and indicated a comfortable victory for the ruling government led by PM Modi with 300 to 350 seats. This optimism resulted in a strong rally for the stock markets on Monday and key equity benchmark indices, Sensex and Nifty, both rallied to touch fresh all-time highs in the trading session.

As of 11 AM, the BSE Sensex surged more than 2,000 points to trade above the 76K mark at 76,010.77, while the NSE Nifty50 rallied over 600 points to touch 23,145.10 in the session.

Experts feel that a win for the ruling government on June 4, 2024 could further boost the bullish sentiment in the market.