The 2019 general election is a significant domestic cue for the stock market.
As the chart shows, at first glance it seems as if the Indian equity market has been generally upbeat before the elections. It was only in 2009, during the financial crisis, that the market fell.
Does that mean the market is naturally optimistic before elections? Much depends on global sentiment.
Global markets were upbeat during 1999 and 2004. However, 2014 was an exception, since the Bharatiya Janata Party was widely expected to win and hopes for reforms were high.
But the level of optimism may not be as high this time around as seen in the past. “Since 1991, every election has been preceded by a coalition government; hence, the market has had room to be hopeful of a stronger government. The market enters the 2019 polls with a majority government already at the helm, so it has to deal with the prospects of a weaker government at the centre," brokerage house Morgan Stanley said in a 16 April report. Stock valuations too are already high.
While there is likely to be short-term volatility, election results do not matter much as far as the long-term performance of the market is concerned.