Market after Election Result- Prediction
Market after Election Result : Stock Market Predictability, especially in the context of India and more specifically during (pre and post) general elections, is probably one of the most difficult things to do. First of all, none of the exit polls are even worth the time & dime spent in putting the data together. Moreover, the Indian economy is not in a great shape at this moment (my opinion). Yes, inflation might be low, interest rates might be reasonable, but that is just not the economy. There is much more to worry about than what is evident on the surface.
- Private investment, which is one of the growth engines of the Indian economy, has seen a serious downtrend over the last 5 years. Projects dropped, have increased drastically, while implementation stalled projects are at previous levels (considering that previous govt was a coalition & 2014–19 was a majority govt at the center with many states under NDA rule, I expected better).
- Over the last 15 years , Sensex hasn’t given any large negative returns in the 3 month period of the general elections quarter.
- It is upto each investor on what they think will happen.
Private investment, which is one of the growth engines of the Indian economy, has seen a serious downtrend over the last 5 years. Projects dropped, have increased drastically, while implementation stalled projects are at previous levels (considering that previous govt was a coalition & 2014–19 was a majority govt at the center with many states under NDA rule, I expected better).
As you can see from the 4th image, completion of private investment projects has fallen a lot, while public investment projects haven’t improved much. In short, most of the tax revenues and other windfall gains have gone into welfare spending and not in infrastructure building, which could have supported employment.
But, let me also tell you that the GDP and GDP per capita will continue to grow, albeit at their own pace. Economy always finds a way to grow, but a reform oriented, focused govt can make it grow faster – as simple as that.
Coming back to stock market returns, the story will be similar to GDP. It will continue to give returns, irrespective of who comes to power. If we observe the data from 1991 (since liberalization and introduction of reforms), under various tenures, the stock market has done its job.
The only caveat is that the govt has to complete its full term of 5 years (except for the AB Vajpayee govt of 1999–2004 due to dotcom bust, Kargil war etc). Though Dr. Manmohan Singh’s govt saw quite a bit of scams, as well as the global financial crisis, data suggests that the stock markets and investors did end up with good returns by the end of his govt’s tenure.
If we go back to the time when Sensex was first setup in 1979, the criteria still remains the same – completion of the full term of the govt has helped in ending up with good returns.
Let us look at the performance of stock markets – 3 months encompassing the election quarter, along with the results announcement day performance.
Over the last 15 years , Sensex hasn’t given any large negative returns in the 3 month period of the general elections quarter.
On the day of results, the performance has been mixed. A coalition govt of UPA coming back to power in 2009 resulted in a 17% upmove in Sensex on the results day itself, while a majority govt (historic as it came after 30 years) of NDA in 2014 resulted in a paltry 0.9% upmove for the Sensex.
Coming to the post-election performance, Sensex fell 3-8% in two months after 1999 and 2014. However, it was opposite during the 2009 elections when the Congress coalition came into power, as stock market surged.
Currently, since Apr 1 2019, Sensex has shown flat to negative returns, continuously showing middle finger (see graph), atleast 5 times in less than 20 trading sessions. We have to wait and watch on how May month turns out to be, for retail investors and see what things will be in case of market after election result .
If we look at the performance of the Sensex 6 months prior and post general elections, since 2009, the returns have been similar. 2004 was different as it was UPA coming to power, while NDA forming govt in 1999 was very unfavorable.
So, if we go by the 6 month assessment period, then Sensex has given 13.3% over the last 6 months.
What to conclude?
- There is nothing definitive, relating stock market to election outcomes. Yes, a stable govt coming to power will help as a sentiment boost, however, the ability to perform over the next 5 years does matter.
- Coalition govt doesn’t imply that the economy doesn’t do well or performance of stock markets is going to be poor. Many of India Inc’s CEOs like Anand Mahindra, Adi Godrej, Sajjan Jindal recently said that they are fine with coalition govt’s also.
- As evident from stock market returns as well as the economic growthprior to the last 5 years, coalition govts’ can deliver, but need focus.
IIFL has given certain strategies for various outcomes of the general elections.
It is upto each investor on what they think will happen.
Coming back to my earlier remarks, if we consider the
- 3 month period of election quarter as reference, we need to check the returns of Apr, May & June to guesstimate the possible returns in the next 3 months after elections.
- 6 month period – pre and post elections – as reference, can we conclude that since Sensex has given 13.3% returns, it will do the same in the next months post elections? I doubt it, considering the state of the economy, earnings of India Inc and other plaguing issues – election promises, NPA’s, fiscal deficit, welfare expenditure, import bills etc.
My best guess for now – I think the stock market will correct anywhere between 5% – 10% in the 3–6 month period, post election results announcement.
Market after Election Result- Prediction
AUTHOR: Gopal Kavalireddi (A Data Maverick who trusts quality & numbers for investing )
Picture courtesy: Business Standard