Elections have always been a tumultuous time for the Indian Stock Market. Every five years the market awaits in anticipation how the upcoming government’s policies would affect the macroeconomic chequerboard, how the legislations would impact consumers’ sentiments and spending power, and the overall theme of development that would boost or mellow the appeal of certain sectors. The markets are generally unpredictable for the average investor. More so in the months anticipating or following the General Elections of the largest democracy of the world.
Data from ‘The Outlook 2024’ report by Barclays shows historically the returns on Nifty50 index have always been positive six months prior to and six months after the results of General Elections in India get declared. This historic data charts the return on Nifty50 index from the General Elections in 1999 till the last one in 2019. It reveals this trend has remained unaffected regardless of the political regime that got elected.
However, since every General Election in India has its own unique story of mandates, aspirations, and the then leadership, the numbers may tell a compelling story of aspirations, expectations, and trepidations of the Indian market in tandem with the country’s General Elections.
The General Elections of 1999 stand out particularly when the BJP-led coalition government led by the then Prime Minister, Atal Bihari Bajpai, failed to win the no confidence motion in Lok-Sabha on April 17, 1999. As per the Report, the return on Nifty50 index was 34.6% in April 1999, six months prior to the results of the next General Elections announced on October 6, 1999. After the no-confidence motion, the Nifty50 returns reduced to 10.8% in June 1999, three months prior to the conclusion of General Elections. And a month before the election results, the return was -0.9%. After the results were declared to be decisively in favour of the BJP led NDA (National Democratic Alliance), the Nifty50 returns were -3.8% in November, perhaps due to uncertainty about the successful formation of the coalition government. However, three months post the elections the returns were 18.9%, and then 3.6% by April 2000.
Around December 2003, six months prior to the conclusion of General Elections in May 2004, the Nifty50 returns stood at 6.7%, which sunk to -9.5% three months prior to the elections, and then stood at -6.9% in April 2004, as per the report. The 2004 General Elections marked the comeback term for the Indian National Congress (INC), led by Sonia Gandhi. The mandate was decisive in favour of the United Progressive Alliance (UPA) Government led by the INC. However, the nation also witnessed drama at the helm of affairs when Sonia Gandhi’s nomination as a Prime Minister was challenged and ultimately Dr. Manmohan Singh became the Prime Minister. Nifty50 returns were -9.7%, in June 2004, and then -5.2% in August 2004, but they yielded 9.6% returns in November 2004, as per the report. Perhaps the movement of returns was negative due to the pre-poll analyses that predicted the return of BJP-led NDA government, and the uncertainty that followed regarding the post of the Prime Minister, even when INC led UPA won elections.
Election year 2009 tells an entirely different story. This was when Dr. Manmohan Singh, an economist who had earlier been a minister of finance, had been leading the country for the past five years. Singh is widely hailed as one of the architects of liberalised India and perhaps the reason why Nifty50 returns were 30.6% in December 2008, six months prior to the conclusion of General Elections in May 2009. The returns were 24.5% in February 2009 and then 5.4% in April 2009. One month after the election results were declared and Dr. Manmohan Singh became the Prime Minister for the second term, Nifty50 returns were 22.1%. The returns moved up to 24.7% in August 2009 and then 36.1% in November 2009, as per Barclays report.
General Elections of 2014 saw the rise of BJP, led by Narendra Modi. The coming to power of BJP was almost a foregone conclusion by the time India started voting, but there had been a prolonged battle of allegations and counter-allegations between BJP and other parties, especially the Indian National Congress. The return on Nifty50 in December 2013 was 18.9%; 18.7% in February 2014, and then 5.8% in April 2014, one month prior to declaration of the results. Nifty50 returns continued to be positive and stood at 5.9%, 8.7%, and 17.3%, one month, three months, and six months after the results, respectively.
The 2019 General Elections that started on April 19, 2019 were preceded by the Pulwama terror strike in February 2019 that led to heavy criticism of the Modi led BJP government. In March 2019, when Group Captain Abhinandan Varthaman VrC was captured by Pakistan and then returned to India on humanitarian grounds, the sentiments rallied back in favour of BJP. Prior to the declaration of results by mid-May 2019 the Nifty50 returns were positive, but diminishing, at 10.7% in December 2018, 9.3% in February 2019, and 1.2%, in April 2019. The returns diminished further post the elections, and stood at 0.8% in June 2019 and -7% August 2019. However Nifty50 returns became positive at 2.2% in November 2019, six months post the elections.
Overall, as per the data reported, it seems the best General Election year for Nifty50 returns, both in terms of stability and growth, was 2009. Also, in all the General Election years, the return on Nifty50 has remained positive six months before and after the conclusion of the elections. So, as the report states, ‘While never a guarantee, history therefore suggests that it pays to stay invested through such events.’
