With the stock market already factoring in policy continuity, there's a sense that investor anxiety is low ahead of the general election. There may be some profit-booking, however, as many sectors are priced to perfection.
Investors seem to be staying on the sidelines amid the ongoing general election. While opinion polls favour the Bharatiya Janata Party-led National Democratic Alliance,investors are wary of a repeat of 2004, when the Indian stock market crashed after the Congress-led United Progressive Alliance won the election. That crash had led to a bear market that lasted around two years.
Mint takes a close look at what's in store for investors in the coming weeks and months following the ongoing national election, how the market behaved before and after previous elections, which sectors could shine after the poll results are declared, and how domestic and foreign flows will be affected.
What should investors expect this time around?
With the market already factoring in policy continuity, there's a sense that investor anxiety is low this time around. “The pre-election rally started in earnest after the assembly election of November 2023, with investors having faith that the current government will return to power," said Viral Shah, senior executive vice president and head of brokerage at 360 ONE Wealth.
The Nifty 50 index, which was trading in a wide band of 16,000 to 18,800 points, broke free and posted double-digit returns in a short span of time, he noted. Over the past month the index has risen by 2% despite regulatory scrutiny in the broader market acting as a dampener.
How did markets behave ahead of previous elections?
In 2004, the Nifty 50 delivered negative returns in the month preceding the national election, whereas ahead of the 2009 and 2014 polls it delivered positive returns.
However, 2019 was different, with no market rally before or after the polls. And let's not forget that Covid later put a damper on investor sentiment. The 2019 election was held after demonetisation in 2016 and GST in 2017. Both these events left a lasting change in the economy and hence the impact on the market was muted, said Shah.
All said, the Nifty 50 has historically traded modestly in the month preceding general election results, but domestic sectors have outperformed. Foreign institutional investor inflows have historically picked up and volatility has usually risen in the run-up to election results, Goldman Sachs said in a report dated 19 April.
What will happen to flows?
“If the current government comes back with a large mandate, they (FIIs), too, will start making a comeback," said Shah. As FIIs have traditionally had large holdings in the banking space, the BFSI sector could benefit. Many private-sector banks that have underperformed the broader market may stage a comeback.
Consumption could also emerge as a dominant theme, aided by volume growth, and the government’s infrastructure push could also give momentum to cement stocks, Shah added.
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