Indian Equity Markets can witness another rally ahead of General Elections 2024 in 6 months

India is ready to witness General Elections in about six months. As per historical records and the current market scenario, experts anticipate yet another pre-election rally. Livemint spoke with market and political experts to understand the impact and outlook of upcoming General elections on equity markets.

“Sensex has shown remarkable resilience amidst political chaos that has happened ahead of the past 11 general elections held between 1980 to 2019. Within the six months before each election, the BSE benchmark has generated an average of 14.3 per cent return over 39 years, highlighting the stock market's ability to navigate and thrive in the middle of political speculation and changes,” said Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities.

“The long-term outlook of the market remains intact, given an array of positive factors such as strong FPI inflows, softening commodity prices, pick-up in credit growth, strong bank balance sheets and capex revival,” Ravi Singh, Founder of DRS Finvest opined.

“Looking ahead, a potential BJP win in the upcoming elections might sustain market stability if backed by assurances of continued economic reforms, building upon these welfare-driven initiatives. Conversely, Congress's promises of social security measures and affordable amenities, if translated into concrete policies post-election, could positively impact long-term market sentiment.” as per policy consultant, Pranav Dwivedi, Mentor- Netratvshaala, UP Government.

“The current NDA government has made a series of structural reforms which led to a strong appetite for global equity flowing to India and at the same time, it led to local investors investing strongly despite the adverse market movements which reflects from strong monthly SIP which touched all time of INR 16,900 crore in October 2023,” said, Amar Ranu, Head - Investment Products & Insights, Anand Rathi Shares and Stock Brokers.

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“In all previous elections, we have seen the equity market going up irrespective of the party coming in power,” added Ranu.

However, 1998 was the only year when Sensex recorded negative returns of 9.3 per cent, while 2009 witnessed the highest returns of 59.8 per cent in the 6 months prior to the elections, according to Samco Securities’ data.

Also Read | Nifty 50 recovers from October blow in just 10 sessions; up 3.59% in November so far

Double Impact: Upcoming General Election and US Bond Yields

Additionally, the 10-year US bond yield cooling is expected to catalyze the FII inflows any time soon, helping the market to rally. Market valuations are also at reasonable levels after the recent correction, as per Sheth.

Additionally, the benchmark NSE Nifty 50 Index has risen in the six months prior to the voting in each of the past five elections, registering an average 16 per cent return during the period, according to Bloomberg. Additionally, the rises in the three months after the polls have averaged more than 3 per cent.

“The RBI may also take a turn towards interest rate cuts in 2024 to support the growth revival, if the inflation is under control and heads towards the RBI comfortable range,” said Singh. “So we may expect Nifty and Sensex to maintain the positive outlook in the election year also.”

Political parties stimulate consumption by spending on voters, injecting liquidity, and aiming to secure support, indirectly influencing the markets, explained Sheth.

The drop in financials, the most weighted among the benchmark Nifty 50's sub-indexes, comes amid worries over the sector's loan growth and profitability after the Reserve Bank of India (RBI) tightened rules for personal loans and credit cards. Singh believed that RBI's move to increase the risk weights for consumer loans was much in line with the expectation. The impact of this notification on the market will be momentarily and will not impact the positive outlook of the market in the election year.

The long-term outlook of the market remains intact, given an array of positive factors such as strong FPI inflows, softening commodity prices, pick-up in credit growth, strong bank balance sheets, and capex revival, according to Singh.