Election Impact on Markets

India's pivotal electoral event, occurring approximately every five years, is slated for April and May next year. As we approach the six-month mark before India's forthcoming general election, attention gravitates toward this pre-election period, often marked by notable fluctuations in the stock market. However, this election cycle unfolds amidst geopolitical tensions and uncertainties surrounding interest rate trajectories and the global economy. The article examines the likelihood of an impact in the months leading to the election

GENERAL ELECTION 2024

The build-up to the general election intensifies investor focus on potential financial shifts. Notably, the voter base has significantly expanded since 2019, estimating nearly one billion eligible voters, including 10-12 per cent involved in the stock market to varying degrees. The six months leading to this pivotal political event typically encompass a volatile phase for market participants, characterised by uncertainty and speculative behaviour.

Elections exert considerable sway over the country’s trajectory, significantly impacting investor sentiment and the overall performance of the market. While delving into past market performance during elections offers insights, it is vital to acknowledge that historical trends may not guarantee future outcomes. Nevertheless, comprehending these historical patterns can furnish valuable context for evaluating current conditions.

The following chart deciphers the election and equity market returns.

In the following paragraph we will delve deep into every phase of the election that will make the above graph clear.

What History Teaches

Looking back at past general elections, a pattern emerges where the stock market experiences increased fluctuations and volatility in the months leading up to the polls. For this we carried out a study of the last 11 general elections held in India. What we found is that the average volatility increases as we approach the general election. On an average six months leading to the election, we observed that the daily volatility of the stock market, taking the Sensex as a representative of the stock market, increases to 1.38 per cent from normal 1.29 per cent.