Can Nifty 50 top 21,000 with a pre-election rally ahead of General Election 2024?
Historical data shows Nifty 50 experienced substantial gains in the months leading up to the general elections. Market participants hope Nifty 50 will repeat this trend before the 2024 General Election.
Domestic equity benchmarks have been on the ascent of late, buoyed by optimism surrounding potential interest rate stabilisation, steady domestic macroeconomic indicators and the in-line performance of Indian corporate earnings for the September quarter.
Nifty 50 is up almost 4 per cent in November so far. Year-to-date, the benchmark index is up over 9 per cent.
Market experts point out that next year's general elections will be the biggest trigger for the market even though the outcome of state elections can cause short-term volatility in the market.
"The next trigger for equity markets is the outcome of General Elections 2024. State elections can create short-term volatility, but the outcome of the General Elections 2024 is a key monitorable," said Dikshit Mittal, fund manager of LIC Mutual Fund.
A noteworthy observation is that historical data indicates a notable tendency for the Nifty 50 to experience substantial gains in the months leading up to the general elections.
In the six months leading up to the past five General Elections, the Nifty 50 has consistently exhibited robust growth, showcasing healthy gains in performance during this crucial period. For example, Nifty 50 jumped 36 per cent in six months ahead of the General Elections in 1999.
Market participants hope that the Nifty 50 will repeat its historical trend even before the General Election 2024.
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Can Nifty hit 21,000 before the General Elections?
Experts expect Nifty 50 to clock healthy gains in the run-up to the General Elections even though there could be some volatility due to state elections, geopolitical developments and interest rate trajectory.
"Going by historical trends, Indian markets can rise before and after the elections. From the October 2023 close of 19,079, Nifty has already risen some 3.5 per cent and could rise some more to make a new high above 20,200 over the next few weeks. However, some volatility due to state elections, geopolitical developments, inflation, and interest rate trajectory cannot be ruled out in the interim," said Deepak Jasani, Head of Retail Research at HDFC Securities.
Santosh Pandey, President and Head of Nuvama Professional Clients Group believes the current rally is due to stable US macroeconomic numbers while India was doing well, in terms of corporate numbers and inflation.
Pandey believes due to these factors, the domestic market will see a rally before the election and the Nifty 50 can breach 21,000 next year.
"However, before the general election during the state election we can see some volatility and some trends can come out from there. Irrespective of that, we are bullish on markets from a long-term perspective. I think 21,000 would be broken next year and it would be due to good corporate earnings, huge capex done by the government and subsequently by the private players along with stable currency and inflation," Pandey said.
Nishit Master, Portfolio Manager at Axis Securities PMS expects the Nifty 50 to hit the 21,000 target by the end of the year 2024.
"Our estimate for Nifty 50 is 21,000 by the 2024 calendar year-end. That target can be achieved earlier if the expectation of policy continuity becomes entrenched amongst market participants before the General Elections in 2024 or if global interest rates start declining rapidly before that," said Master.
Master underscored there is a decent possibility that the markets may witness a pre-election rally. Still, a clearer picture might emerge after the assembly elections' results are announced in December. For a pre-election rally, the markets must believe that there will be continuity on policy matters even after the elections, said Master.
Teresa John, Deputy Head of Research & Economist at Nirmal Bang Institutional Equities believes by and large, the best is already priced in the market. However, if the global macro environment remains supportive with the Fed indicating a decisive end to the rate hike cycle with a soft landing scenario globally, this could support flows into India providing further legs to the equity market rally.
"Political stability and strong domestic growth bode well for India despite the valuation premium over other EMs (emerging markets)," said John.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services underscored that during the last five General Elections, the markets had rallied in the run up to the elections with returns ranging from 3.1 per cent to 30.4 per cent in the six months to the elections.
Vijayakumar believes sharp movements after the elections happen only when the election results are totally unexpected. This happened after the 2009 elections when the UPA govt got a thumping victory and the market set a record, hitting the upper circuit twice.
"Markets like stability and, therefore, the market’s preference would be the continuation of the BJP regime. But if the I.N.D.I.A alliance succeeds in toppling the NDA, there will be a sharp correction in the market. But the probability of such an outcome is very low now," said Vijayakumar.
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