2019 Lok Sabha Election Impact on Stock Market

By Advisorymandi Forbidden
18-May-2019 3:57:34 PM
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When the 17th Lok Sabha Election is on the verge of end, there is one question in every investor or trader’s mind – What will be the effect of Lok Sabha Election 2019 on the stock market? Whether it is Assembly Election, Lok Sabha Election or any other political event, elections have always made investors nervous. Even now you can see that during the period of Lok Sabha Election 2019, investors turned cautious due to uncertainties over the election results.

But, have you ever thought why the elections considered so important when discussing the stock market?

Well, it is because the elections play a major role in the volatility of the stock market and how it will move forward in the future. In Lok Sabha Election 2019, whichever party won the election, they would be kept responsible for shaping the future economic policies of the country. Whenever there is an election, it impacts the market either in short-term, long-term, or both. The polling result may impact the stock market in the short-term but it is the reforms and policy decisions taken by the new government that will impact the stock market in the long-term. And it matters most!

 

How Lok Sabha Election 2019 Results will Impact on Stock Market?

According to some data analysts, elections do not really have an impact on the stock market. Also, there were some market veterans who stated that the assembly election results could influence the Lok Sabha Election 2019.

If that’s the case, then what about the recent fluctuation indices, a week after the exit poll of state assembly elections 2018 which held in Rajasthan, Chhattisgarh, Telangana, Madhya Pradesh, and Mizoram? – The major indices of the domestic market – NIFTY & SENSEX lost over 650 points and 1.5 percent respectively. And it was just a week before the results were announced.

 

effects of lok sabha election 2019 on stock market

 

And post-poll market corrections followed by almost the sharp rise in market valuation within the next six months. One thing is clear; the state elections may not directly affect the stock market but add that a knee-jerk reaction is unavoidable.

Now the question is: Will the market be able to stage such a big recovery even after the results of Lok Sabha Election 2019?

If we talk about the current market condition then the market is pretty anxious before Lok Sabha election results in 2019. Even on Thursday, a large surged helped Nifty and SENSEX surged. Thanks to the rush in the IT sector, if it had not been then the market would have continued plunged due to investors’ cautiousness.

 

 

Even the concern over US-China trade and wider trade deficit growing anxiety over Lok Sabha Election 2019 which could lead to the erosion in the Indian stock market. To be precise, BSE’s SENSEX index lost 1,977 points, over 5 percent since April 26 while NSE’s Nifty index lost over 600 points as the seventh phase of Lok Sabha election 2019 about to start.

No doubt, that the stock market and investors prefer stability – any disturbance in domestic or global could lead to a slump in stock valuation and fund outflow. According to some traders, the market will normalize even when the exit polls forecast unexpected results over the winner of General Election 2019.

 

How the stock market reacted to Pre-Lok Sabha Election 2019 so far?

Compared to the Assembly polls of last year, the Lok Sabha Elections are far more influencing for the Indian stock market and investors. As it dictates the short-term returns, volatility, foreign fund flows in the domestic market and the long-term trend of the stock market. Despite the nine-consecutive day fall in the domestic market, the benchmark indices of rallied exponentially in the year 2019 so far. The 30-share BSE-SENSEX touched an all-time high of 39,364 while the NISE NIFTY50 crossed the 11,800-mark.

 

 

The stock continued rising upwards in April but the market turned a little brittle in the month of May as investors become more cautious towards the Lok Sabha elections and its effect on the stock market. It is the uncertainty over the outcome of the Lok Sabha election 2019 and its impact on the Indian stock market.

 

How the stock market reacted to Exit Polls over the years? – Past Performances of Indices Pre-%Post-Lok Sabha Elections

Undoubtedly, Lok Sabha Elections has a big influence on the stock market – both in short-term and long-term. Truth to be told, it is important to understand the effects of General Elections on the stock market for both short-term and long-term. Stock traders who trade in derivates concerned about the swings in the stock market due to election results. However, the long-term investor shouldn’t really worry over short-term fluctuations in the stock market during the election period. Instead, they should strategize for the long-term.

Now to understand how the Lok Sabha Election 2019 will affect the stock market, it is important to go through the historical data to check the past performances of the benchmark indices in both short-&long-term.

First, let’s check out the short-term effects of Lok Sabha Elections on stock market throughout the year.

 

Date Cut-off date for return computation 6-month return prior 6-month return later
20-May-91 30-Apr-91 -4.6% 53.0%
30-May-96 31-May-96 24.4% -22.4%
07-May-98 28-Feb-98 -6.5% -19.0%
03-Oct-99 30-Sep-99 27.4% 5.0%
10-May-04 30-Apr-04 15.2% 0.3%
13-May-09 30-Apr-09 16.5% 39.4%
12-May-14 30-Apr-14 5.9% 24.3%

Source: Scripbox

 

In 2004 Lok Sabha Elections, the market gained in the pre-poll rush but plunged after the final results. The SENSEX index which touched the intraday high of 6,250 points, fell flat 4,300 points by the middle of May, almost 2,000 points. It happened when the Indian National Congress (INC) beat the exit polls and come out victorious.

However, in Lok Sabha Elections 2009 we’ve witnessed a different situation. The BSE-SENSEX which rose over 18 percent in the two months prior to Lok Sabha Elections, gained at least 24 percent just a month after UPA comes to power. Not only the market outperformed the expectations but also witnessed Bull Run in the next 18 months.

Similar movement was expected in the 2014 Lok Sabha Elections when the market was expecting BJP-led NDA government. And since the market was already predicting the same, the SENSEX rose almost 11 percent in the two-month period before the declaration of election results. And when the exit polls revealed the outcome, the BSE-SENSEX crossed 24,000 points for the first time.

But, now the five-years have passed of Modi-led BJP government and the perception has also changed significantly among traders and investors. The BJP government looked investor-friendly and since it has brought reforms like GST, so if the BJP government come in power again then the market will move in a positive direction, and vice-versa. So, if the BJP will be re-elected again, there’s a good possibility that the market will show strong short-term due to positive sentiments but if the BJP falls short then the market will be volatile for a while, but soon recover from it.

 

Advisorymandi – To Know How Market will react to Lok Sabha Election 2019 Results

One thing also very clear from the above historical data that the market wings on a short-term basis after influencing from exit polls. So, the traders must be more cautious towards the election results since it cam significantly, affect their existing trades and investments.

It is true that the stock market works on concrete information. But, until there is such news, the stock market will work upon assumptions and speculations. But, it is not wise to make trading and investing decisions based on some historical assumptions and past performances when you can actually make decisions on the analysis of 2019 Lok Sabha Elections.

Instead of relying upon some random research analyst, here at Advisorymandi you can actually get the clear, in-depth analysis on the exit polls and how the Lok Sabha Election 2019 will affect the stock market in both short-term and long-term. At this platform, we’ve more than 260+ SEBI-reg. research analysts who are experienced market professionals, capable of providing proper guidance in stock recommendations and portfolio management. It is the biggest, next-generation platform where all the top experts of the stock market reside.

Under the right guidance, not only you will be able to hedge yourself against the Lok Sabha Election results uncertainty but also boost your stock returns at minimal risk.

 

To get the fastest updates in exit polls, latest coverage on polling results, and exclusive election news, on Lok Sabha Election 2019 visit:  advisorymandi.com/election-2019.

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Author: Advisorymandi

AdvisoryMandi is India's most trusted Stock Market Advisory marketplace covers NSE, BSE, MCX & NCDEX. Invest with confidence and harness the power of AdvisoryMandi to make smarter investment decisions in Stocks, Indices, Commodities, Forex & IPO.