Sensex at 75k: Why the bulls are unusually calm on the eve of an election

But this time around the market seems to be ignoring the political situation. The VIX, the volatility index that tracks option premiums, is at its lowest level so far this year. This is another sign traders aren’t expecting large, sudden price swings.

Trading volumes are good, which is a sign of wide participation. Prices are up across a wide variety of stocks. Retail investments continue to pour into mutual funds. Foreign portfolio investors continue to be consistent buyers of equity and rupee debt.

There are several reasons for this “business as usual" attitude. One is simply that the election has a long runway. The result will only be known in early June. There will probably be nervousness and corrections in May and June, as the seven phases play out. But if a week is a long time in politics, seven weeks is a very long time in stock markets.

Apart from this, the smart money believes financial markets will remain healthy, regardless of election results.

Most investors expect the BJP to return for a third term. But even the few who may be bracing for a Black Swan event and change in government expect the economic momentum to remain undisturbed. Even the NDA-sceptics who have read the Congress manifesto believe there will be continuity in economic policy since the opposition alliance's agenda includes no radical changes on this front.

Investors who have memories of the 2004 general elections point to the fact that economic momentum was maintained in that instance, even though the Vajpayee-led NDA was replaced by the UPA in a shock result. Indeed, the UPA government led by Manmohan Singh was in charge over a decade when India enjoyed its longest, strongest bull market and excellent GDP growth. If – and this is a big if – the BJP is shunted out of power, we could see that scenario repeat.

Another reason for apparent calmness is that investors are focused on the granular details at the moment, awaiting corporate results for the fourth quarter and all of FY24. Those will start coming in from next week, and the consensus expectations are good. Management commentary and business updates from companies so far have been cautiously optimistic for the most part.

There are also positive data points in most high-frequency indicators. Vehicle sales have been strong, the volume of railway freight movement and port traffic has been good, power consumption has been high, the hospitality industry is booming, the upper end of the real estate market is buzzing, and banks have seen a reduction in bad loans and slippages. None of this may be definitive, but taken together it invokes optimism and suggests a genuine recovery in growth.

While the RBI held policy interest rates steady and kept its GDP estimates unchanged, it mentioned in the latest monetary policy that it expects inflation to fall to 4.5% this fiscal year and sees rural demand improving. Lower interest rates and higher rural consumption would both turbocharge growth.

The current market conditions could, of course, represent the calm before the storm. Indeed, as the elections get underway, we can expect short-term turmoil and sudden, massive price swings. That is inevitable since there are always rumours during elections, and markets respond to these. But stable market conditions and hopes of policy continuity regardless of the outcome should keep the bulls in business.