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Looking at market and sectoral performance during past national elections
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5 min read | Updated on May 28, 2024, 14:26 IST
SUMMARY
Switch on the news or check your Instagram reels, elections are everywhere. As Indian elections draw to a close, with results expected in a couple of weeks, let’s look at the impact of elections on the markets.
Analysing the impact of elections on markets
During election season, markets typically fluctuate between jittery and excited. Before elections, investors try to gauge which party could come to power and what their priorities might be. They also try to analyse the expected strength of the new government: whether it will be a majority or an coalition government. After the elections, the nature of the new government, their track record in executing their pre-poll promises are tracked. There are a multitude of such factors that impact investor sentiments.
These events typically cause a volatility spike during both the pre and post election period.
In this article, we look at the impact of elections on markets.
We break this into two parts:
- Impact of the past 5 elections on the broader markets
- Performance of key selected sectors over the past 2 elections
Let us dive in.
Impact of elections on broader markets
As we see in the table below, despite volatility - market performance is typically favourable during the pre and post elections period.
Very interestingly (and maybe also coincidentally), the current pre-election performance during this election cycle, is broadly mirrors the average trend of the past 5 elections
| Lok Sabha Elections | 1 year before elections | 6 months before elections | 1 month before elections | 1 month after elections | 6 months after elections | 1 year after elections |
|---|---|---|---|---|---|---|
| 10/6/1999 | 50.7% | 34.6% | 3.3 | -0.8% | 3.87 | -12.6% |
| 5/13/2004 | 98.4% | 8.3% | -8.9% | -14.7% | 9.7% | 18.25% |
| 5/15/2009 | -24.9% | 28.4% | 26.8% | 6.8% | 37.3% | 38.7% |
| 5/16/2014 | 16.6% | 15.1% | 8.0% | 7.1% | 16.1% | 15.8% |
| 5/23/2019* | 5.2% | 11.5% | -0.4% | -0.5% | 3.89% | -23.7% |
| Average | 29.2% | 19.6% | 5.7% | -0.4% | 14.1% | 7.2% |
| 04-06-2024 | 23.2% | 13.3% | 1.8% | - | - | - |
Source: Investing.com; *Performance one year post is distorted due to COVID-19; #Returns are calculated for the period upto 16th May 2024
Now, let's look at the second part; are there typical sectoral winners and losers?
Sectoral returns: How did they fare in the last election?
Sectoral returns are mainly governed by policy moves of the existing govt and potential governments possible changes. In the table below, we look at the performance of sectoral performance after the two elections of 2014 and 2019.
The analysis suggests that Infra, Financial Services, FMCG and Banks were the sectors, which performed well during both the periods.
| Sectors | 1 month after 2014 elections | 6 months after 2014 elections | 1 year after 2014 elections | 1 month after 2019 elections | 6 months after 2019 elections | Dec 2019 |
|---|---|---|---|---|---|---|
| Realty | 24.4% | 4.6% | -3.5% | 1.2% | 2.9% | 8.1% |
| PSE | 11.1% | 11.8% | 2.6% | 2.2% | -6.6% | -9.8% |
| Auto | 6.8% | 34.5% | 36.7% | 4.6% | -2.2% | -0.5% |
| Metal | 18.7% | 2.7% | -12.8% | 2.5% | -10.7% | -4.1% |
| Infra | 12.2% | 11.5% | 6.6% | 3.2% | 2.8% | 1.8% |
| Financial services | 3.8% | 20.5% | 24.6% | 2.2% | 7.1% | 12.4% |
| FMCG | 6.1% | 3.4% | –0.8% | -0.9% | 3.7% | 1.6% |
| Bank | 18.9% | 17.4% | 3.5% | 0.6% | 2.3% | 6.3% |
| PSU Bank | 8.9% | 8.1% | 1.1% | -1.8% | -18.8% | -19.8% |
| Pharma | 5.5% | -8.5% | -9.4% | -7.0% | -5.1% | -5.3% |
| IT | 13.7% | 13.2% | -4.3% | 4.2% | -3.8% | 2.1% |
Source: Investing.com; * Performance for post-2019 elections has been considered till 23 December 2019 to avoid Covid related distortion.
Please note: Past is not an indicator of future performance. Investors should analyse the priorities of the new government, evaluate any sector on its own merits before making decisions.
What investors need to keep in mind?
First of all, please remember that the past results don't always repeat. While it is good to be aware of it, before making any investment decision, investors should take the current environment into consideration and not just rely on the past.
More importantly, ask yourself this basic question, do you believe in the country’s long term growth potential? If so, don't let this short term volatility faze you. Remember, regardless of who comes to governments - equities remain one of the top performing asset classes over the long term
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