Indian stock market ready for pre-election rally ahead of 2024 polls | Mint
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Business News/ Markets / Stock Markets/  Indian stock market ready for pre-election rally ahead of 2024 polls

Indian stock market ready for pre-election rally ahead of 2024 polls

India anticipates sustained healthy government spending, benefiting the rural market. Crude prices are falling, which is advantageous for India fiscally. Pre-election data shows that the Indian market has historically provided a healthy rally before elections.

Indian stock market ready for pre-market rallyPremium
Indian stock market ready for pre-market rally

Between July and October 2023, the Indian market experienced a consolidation period characterized by a global sell-off strategy. A reversal of this trend began in November, and current indicators suggest that this shift will likely continue in the short to medium term. This shift is linked to alterations in the trajectory of global bond yields, complemented by a decrease in inflation. US Fed’s tone has cushioned suggesting moderation in rate in 2024, safer to prevent a profound slowdown in the economy.

Track assembly election results here

S&P Global Rating has raised India's GDP growth forecast for the FY24 from 6.0% to 6.4%, instilling optimism across the broader market. The heightened confidence suggests that the Nifty50 could comfortably breach the psychological barrier of 20,000 and retain these gains for long-term support. The bold performance of the global markets and IPO listings is adding glitter to mid & small caps. The conducive backdrop, shaped by improvements in both the global and domestic environments, sets the stage for a pre-election rally in India.

Also read: SBI, M&M, Axis Bank to L&T - Motilal Oswal recommends 14 stocks to buy after BJP win in assembly elections

India anticipates sustained healthy government spending, particularly benefiting the rural market. Crude prices are falling, which is an advantage for India fiscally. Pre-election polls suggest a seamless continuation of the reform rally without major disruptions, although there is a concern that the number of seats may be lower compared to 2019. However, drawing from historical track record, suggests robust pre-election returns, reinforcing the potential for a rehearsal rally. A national election outcome has never impacted the long-term rally of India. Rather, any short-term volatility observed tends to be limited to a period of less than three months, particularly in cases of surprising or hung parliament results.

Pre & Post election data below, excluding the 2009 period, where India benefited a lot from the post 2008 global crisis rally, shows that the domestic market has provided a healthy pre-election rally of an average of 18% for 6 months and 8% for 3 months. And post rally of average 2% in 3 months and 10% in 6 months.

India pre and post-elections data
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India pre and post-elections data

The US is approaching its November 2024 elections, and historical trends reveal a somewhat more volatile pre-election rally compared to India. This volatility often manifests as short-term knee-jerk reactions or consolidation, particularly in the 3 months leading up to the election period. Such fluctuations can be attributed to a potential slowdown/change in decision-making, government spending, and concerns about the transition in leadership and its impact on economic growth. Excluding the highly volatile 2008 global crisis period, the data shows that the pre-election rally in the US averaged 5.9% over six months and 0.4% over three months. In contrast, the post-election period displayed better performance with an average increase of 5.2% over three months and 8.2% over six months.

US elections rally data
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US elections rally data

Based on the current poll views, a change is anticipated in the US leadership. Historically, it has not impacted US and global market performance in the long-term. In India, the pre and post rally has been positive, in any outcome. And a change is not anticipated by the polls this time. But in the event of any profound change, the ongoing reformist rally will have a big impact on the short-term post-election.

The author, Vinod Nair is Head of Research at Geojit Financial Services.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.

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Published: 04 Dec 2023, 11:13 AM IST
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