Short memories unite politicians and stock market traders.
Five years ago—on 17 May 2004—Indian equities plunged on news that the United Progressive Alliance would form a government in New Delhi with Left support. The 30-share Sensex had lost a record 15.8% of its value on a frenetic day, opening at 5,020 and hitting an intraday low of 4,227.
That episode receded from public memory after the subsequent bull run that took the Sensex over the 21,000 mark a few years later, as part of a global economic and asset boom that ended in the current economic crisis.
Traders are quite likely to warmly welcome the same coalition in a radically different manner on Monday, as the prospect of an unstable coalition supported by fringe groups has not materialized.
But what happened on 17 May 2004 tells us in stark terms that long-term investors should not fall prey to either knee-jerk panic or euphoria. They would do well to focus on economic and corporate fundamentals instead.