As India gears up for the general election 2024, the sentiment on Dalal Street also turns cautious. The outcome of the election will be a pivotal event and is likely to have a significant influence on the Indian stock market as it holds immense sway over investor sentiment, shaping expectations and policy trajectories.
The equity benchmark indices, Sensex and Nifty 50, are currently facing heightened volatility. This is expected to continue till the general election results are announced, likely in mid-May.
In the past six months, the Sensex has gained over 11%, while the Nifty 50 has rallied more than 14%.
An analysis of the stock market data during the last five general elections – 1999, 2004, 2009, 2014 and 2019 – shows that the Nifty and the Bank Nifty tend to move up strongly on a 6-month basis into the election results.
Nifty 50
On a three-month basis into the election results, the Nifty 50 has closed in the green on four occasions, registering an average upward movement of approximately 10.7%, as per a report by JM Financial. The maximum positive move of around 25% was observed in 2009 while a minimum positive move of 8% was observed in 2019.
The index had closed in the red in 2004, down by around 10%. However, it was followed by a massive recovery from June 2004 onwards.
Bank Nifty
The Bank Nifty has closed in the green on all the four occasions (the index was not trading during the year 1999) with an average up-move of around 21%, data compiled by JM Financial showed.
It had closed flat in 2004, while the highest return of approximately 46% was observed in 2014.
Further, the Bank Nifty has outperformed the Nifty 50 on all the four occasions with an average outperformance of around 11%.
Potential Outperformers and Underperformers
The analysis report considers a universe of the current F&O stocks with a minimum trading history since 2004 and a total of 119 such stocks were identified.
Out of these 199 identified stocks, the 10 potential were identified as the potential outliers, with the sorting based on highest average returns. These stocks are – Adani Enterprise, Kotak Mahindra Bank, Siemens, Shree Cement, UPL, IndusInd Bank, Ashok Leyland, Federal Bank, Grasim Industries and Bajaj Finance.
On the contrary, nine stocks were identified as the potential outliers, with the sorting based on lowest average returns.
These include Hindustan Unilever, Divi’s Laboratories, Oracle Financial Services Software, Britannia Industries, Tata Steel, Glenmark Pharmaceuticals, HCL Technologies, Tata Power and Steel Authority of India (SAIL).
The historical analyses of the past five general elections reveal intriguing trends in market movements, with both Nifty 50 and Bank Nifty showcasing notable performances. The coming months will undoubtedly witness a dynamic interplay of political outcomes and financial markets, creating an environment where careful observation and strategic decision-making become paramount for investors.
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 decisions.
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Published: 28 Feb 2024, 03:48 PM IST