Do elections have any impact on the stock market? Long story short, yes! Not only the elections but also the presentation of the budget, economic policies, the popularity of the leader, economic events and other factors, can send ripples through the stock market.
Before the May 2014 election, the Sensex went up by 16.6% in a span of one year and by 8% in just one month before the election results, according to an Economic Times report.
After the results were announced, and the Narendra Modi government was elected, the Sensex went up by 7.1% in one month and 20.6% in one year.
So, what about the upcoming 2024 general elections? How might they shake things up? Well, we’ve got all the answers you need!
Morgan Stanley has outlined four possible scenarios for the 2024 Indian General Elections with a market impact ranging from a thrilling 5% rise to a nerve-wracking 40% decline. Let’s explore these outcomes together:
CASE 1: If the current government wins with over 260 seats or an absolute majority, the Sensex will likely gain anywhere between 0% and 5% in three months after the elections.
However, this could change if the opposition forms a strong coalition early next year.
CASE 2: If the lead party, BJP, wins less than 240 seats and has to form a coalition government, then it’s not great for the stock market and will be less than ideal.
In this situation, Indian markets could decline by 5-7%.
CASE 3: If the leading party gets around 225+ seats and takes control of the government, but a different party has a strong position in the house, the stock market might experience a big drop of up to 20-25%. This is because of the fear of policy stability and foreign sentiments and flows.
CASE 4: If the current government loses, and the leading party gets fewer than 200 seats, forming a weak coalition with little power, the stock market could crash by a massive 40%, considering it a worst-case scenario.
A weak coalition will mean that it’s hard to predict how the economy will grow.
So, if we see a 40% drop, the Sensex could fall to a level of 43,155 from its previous high. This is similar to what happened in 2004 (the then NDA government lost) when the election results surprised the market, and the Sensex fell by 17% in just one trading session.
How Markets Performed During Past Elections?
Before the 2014 general elections in India, the stock market was doing pretty well. To put it simply, the BSE Sensex, the benchmark index of the Indian stock market, went up a lot in the three months leading up to the election results announcement.
Here’s a table that shows how much the stock market went up or down one year and one month before versus after the election results were announced. This can give us an idea of how elections can affect the stock market.
Source: The Economic Times
In the 2019 Lok Sabha elections, the stock market was a bit all over the place in the weeks leading up to the election.
But once the results started coming in and it was clear that the ruling party had a strong win, the stock market went up. The market sentiment was positive because investors expected the government to continue its economic reforms and policies.
Now, when election results are surprising or if nobody wins big and there’s uncertainty, the stock market can show significant volatility. But here’s the thing – that volatility isn’t always bad. Sometimes, it can create opportunities for investors to make smart moves.
So, how do you think the stock market will react this time around in the elections?
Written By Shivani Singh
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