General Election 2019 is the thing now every investor is waiting for. But why the elections are considered to be much more important for stock markets. Why every tom, dick and harry associated with the stock market is saying 2019 elections as a key trigger for the markets? Let us explore the facts behind this and see where the markets are expected to head ahead.General Election 2019 is the thing now every investor is waiting for. But why the elections are considered to be much more important for stock markets. Why every tom, dick and harry associated with the stock market is saying 2019 elections as a key trigger for the markets? Let us explore the facts behind this and see where the markets are expected to head ahead.
General election results decide the apex authorities for the country. The elected party will be responsible for the policy formulation and other economic decisions for the country. These decisions are directly related to the stock prices, as the favourable policies lead to industry growth and vice versa. Therefore elections are considered to be crucial for the stock markets. Generally, in the pre-election period the government’s past actions and election manifesto are considered to be the indicators for the future. Therefore, if investors find government optimistic on certain sectors then they start betting on the best possible stocks among that industry or sector, which further drives their prices.
On the basic level for everyone, the anticipated reforms and government plans drive the market sentiments. This is the only relation between the stock market and the general election. Upcoming election 2019 is a litmus test for BJP government. The biggest regulatory changes, tax reforms GST, Demonetisation have been carried by this government. Moreover, the export policies and other policies to boost small businesses are the key takeaways in the last 5 years.
Let us take the example of General Elections of 2009. Dr. Manmohan Singh led UPA Government won the elections favourably with a comfortable majority. But before the results came out, Sensex was around 12000. After the results declaration and subsequent trading on the next day Sensex hit 2 upper circuits and closed around 2100 points up taking its level to over 14200 and gaining almost 17.4%, Its single largest gain in a single day in its entire history. Nifty too gained over 17% over the Pro Government Sentiments. Investors were euphoric after the United Progressive Alliance emerged victorious in the 2009 general elections.
General Election 2019 are not only important for BJP but also for all the stock market investor. The history shows that stock markets have always favoured with the stable government and good economic reforms. The best example for this is the market movements in 1991. In the election year (1991) markets, market shot up almost by 200% due to the good economic reforms and strong budgets. A similar thing could be observed in 1999 which was the technological boom era where stock markets appreciated really well. It’s not only the election which drives the stock market rally but the decisions made by the government. This makes us crystal clear that elections have the material impact on the stock markets in the short run. But in the longer term, the decisions of the government and the economic growth matters more.
Election in 2019 can bring volatility in the markets; however, the strong economic growth can offset this. If the election result favours BJP, then it may turn a big positive. The investors would start betting on the sectors where progressive government policies would be pointing out. IT, pharma industries as well as textile and paper industries are some of the key beneficiaries of last year. And if the government changes then the market may see another crash soon.
Huzefa Lokhandwala
MBA-FP (2018-20)