BackHow have the stock markets fared around elections?
The markets are expected to rally in the weeks ahead
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In 2009, the benchmark S&P BSE Sensex rose 18% in the two months before elections, in the middle of the range of gains in Asian indices. It rallied 24% one month after the election results, outperforming the Asian markets. But that was also due to the economy coming out of a downturn on the back of a massive stimulus programme. The top sectoral gainers were metals, capital goods and real estate.
In 2004, the Sensex was down 1% two months prior to elections and fell 11% after the election verdict, underperforming Asian indices because the Bharatiya Janata Party, which had been expected to come to power, did not win. The Left support for the Congress government also rattled markets. The stocks of state-owned firms, banks, oil companies and capital goods makers were the top losers.
This time around the economic environment is very different as India is seeing a prolonged period of anaemic growth with gross domestic product expanding at a pace below 5% for seven consecutive quarters. Few jobs are being created. The US Federal Reserve is tapering its massive stimulus programme.
Still, the markets are expected to rally in the weeks ahead. “EM (emerging market) equities tend to outperform significantly before elections. Outperformance is prominent in the short-term pre-election horizon," wrote Morgan Stanley Private Equity Asia Ltd analysts in an October 2013 report.
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