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Anamya Jain

Marquee Investment Banking

Marquee Fellowship Programm

05th December 2024

"Evaluate the impact of ongoing elections on the investment climate in India."

Any new event in the economy impacts stocks. Elections are one such event

as they affect society, people, and the economy. Stock markets are the barometer of political

sentiment and economic stability during the election period. Investors closely monitor

elections as they impact the economy and market dynamics. While monitoring elections

investors need to assess the political uncertainty based on which party will come to power

what it will be policies and how it will affect the economy and stock market.

RELATIONSHIP BETWEEN ELECTIONS AND STOCK MARKET

1. Contents of Manifesto: The Manifesto contains all the social, economic, and

environmental policies of a party that it will implement if it gets elected. If the party

that has better economic policies for the economy has a higher chance of winning then

stock prices rise.

2. Ideology: The political party that has a better vision of economic growth during its

tenure has a better chance of winning than it will create positive sentiments among the

investors. Vice Versa the party with a vague vision has a better chance than it will

create negative sentiment.

3. Exit Poll Results: It's a mock poll conducted before elections which indicates the

possibility of a party winning elections. If the existing party comes to power then it

will create stability in the market.

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4. Expected Economic Policy: A Party that has better economic policies toward growth

and development would lead to positive sentiments among investors.

5. Impact on sectors: The pre-election volatility also impacts the various industries and

sectors. Every party has a different set of policies regarding different sectors. In that

case elections important for investors to identify which sectors to invest in.

PAST ELECTIONS AND THEIR IMPACT ON THE STOCK MARKET

Table 1: Market performance in the month and year post/pre-elections

The average return 1 year before elections is 29.1% and it fell to 6% before 1 month of the

election. Both the no. suggests that the market performed well in the pre-election year. Except

for the elections of 2009 where markets fell by 24.9%, it was compensated by the jump of

26.8%. Hence we can conclude that markets always remain volatile during the election period

considering past figures.

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CURRENT POLITICAL SCENARIO

Currently there 2 main contemporaries in Indian Politics. On one side there is the existing

government BJP and to its opposition there is I.N.D.I.A. In the latest state election of 2023 in

the Hindi heartland of MP, Rajasthan, and Chattisgarh BJP won by a clear majority showing

popularity and support before the central election. Although state elections have not much

effect on central elections A decisive BJP win will reinforce the consensus view that the party

is on the front foot for the 2024 general elections. This will likely add a further leg of the

rally to the markets as policy continuity will be viewed as a positive growth shock in the

medium term," said Emkay Global Securities. Although congrees win in southern states

showed some hope for them still there is a lack of strong opposition.

MORGAN STANLEY REPORT ON 2024 ELECTIONS

Morgan Stanley’s recent report suggests these market outcomes post-elections:

● A potential gain of up to 5% within three months post-election if the current

government secures a clear majority.

● A decline ranging between 5% to 25% in case of a coalition government forming

● A plummet by a staggering 40% should the BJP government lose and secure fewer

than 200 seats, resulting in a weak coalition.

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IMPACT OF ELECTIONS ON INDIAN STOCK MARKET AND ECONOMY

The outcomes of elections are very uncertain and any party can win, but a stable

government ensures trust among investors and also long-term implementation of policies.

The possible impacts are:

1. Policy Consistency: If the existing government comes to power it will ensure the

policy adopted in the previous tenure is continued and implemented effectively. This

generates trust among global investors

2. Ensures Stability: A stable government provides a sound economic playground. It

attracts high-end value investors in the economy and this leads to an inflow of capital

and boosts the economy

3. Foreign Investment Influx: The Indian economy is currently growing at a fast pace.

All the factors of capital (land, labor, capital, entrepreneurship) are available in India

at a comparatively lesser cost than in Vietnam and China. Also due to political

stability as compared to other southern Asian countries, it is most attractive to foreign

investors

4. Positive sentiment Surge: The BJP-led government has invested heavily and

promoted infrastructure and the banking sector. Also, the BJP-led government

supported the new age startups and promoted them. All this created positive

sentiments among investors

5. Infrastructure Boom: The BJP-led government has invested heavily in railways

also. It also improved the quality of National Highways which in turn reduced the cost

and time for logistics delivery.Not only that the government with private partnership

is improving the infrastructre of country

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CONCLUSION

In conclusion, it is stated that elections bring volatility in markets in the short term during the

election period. It's suggested that investors adopt the wait-and-see approach. In the long

term, the impact is estimated by policies adopted by the government. From the long-term

perspective, investors should invest in considering the fundamentals and diversification to

avoid election-related volatility.

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Works Cited

https://blog.researchandranking.com/7-ways-2024-elections-will-impact-the-stock-market/

https://www.icicidirect.com/research/equity/finace/stock-market-and-2024-elections

https://www.angelone.in/knowledge-center/share-market/how-do-elections-affect-stock-mark

ets

https://www.smallcase.com/blog/impact-of-elections-on-indian-stock-markets/
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