Election Analysis: Opportunities and Challenges for Investors

The correlation between general elections and the stock market has always been intriguing. While volatility is often observed around election periods, the longterm 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.

Trends in Investment in Share Mkt Amid Elections

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 postelection. 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.