General Elections 2024 is one of the biggest events to watch this year. A study on the Indian stock market performance in the previous election years shows that whatever the case ahead of the elections and its outcome, the Indian benchmark indices, the Sensex and Nifty 50, have generated positive returns after the elections. Sectors like Banking, Consumer Durables and Information Technology have always reached the top five outperforming sectors after the elections.

While past performance does not guarantee future results, here are some insights on how it has fared in previous election years.

The background

The stock market participants always try to position themselves well ahead of this major event, anticipating the outcome of the elections. Once the results are out, they reposition themselves based on how far their assumptions come true or, in case of surprises, after reassessing the new reality.

We have taken the last four election years leaving out 1999. The reason is that, in 1999 the election results came out only in October. In the other four election years, the results were out anywhere in the second half of May.

We have split this study into two parts. First, how the benchmark indices, the Sensex and Nifty 50 and the other sectoral indices performed up to the day before the election results were announced. Then, the market performance for the rest of the year after the election results outcome.

Run up to the election results

2004 is the only instance where the Sensex and Nifty 50 had ended in negative in the run-up to the election results. The election results were announced on May 13, 2004. The Nifty 50 and Sensex were down 9 per cent and 8 per cent (year-to-date), respectively, as on May 12, 2004.

Apart from 2004, in the other three instances (2009, 2014 and 2019), the Sensex and Nifty 50 had given positive returns. 2009 was the best among the three, wherein the Sensex and Nifty 50 were up 26 per cent and 24 per cent, respectively, as on May 15, 2009 – the day before the election results were announced. The recovery from troughs after the Great Financial Crisis (GFC) crash in 2008 aided this outperformance in that period. In 2014 and 2019, both indices were up 13 per cent and 8 per cent each before the results.

Post-election performance

Sensex and Nifty 50 have generated positive returns in all four earlier instances from the day after the election results were announced for the rest of that particular calendar year.

Indeed, the benchmark indices crashed about 20 per cent two days after the election results in 2004. The surprise defeat of the National Democratic Alliance jolted the markets. Markets also got specifically spooked a day after the results post comments by CPI (whose support UPA required to form a government) leader Sitaram Yechury that the Disinvestment Ministry will have to be wound up, which was seen as a reversal of reforms initiated by the NDA. This, of course, got reversed after investors gained confidence once Manmohan Singh was named the PM.

2009 once again tops the table, though. Sensex and Nifty 50 had surged over 40 per cent each in 2009 from May 18 (the first trading day after election results) to December 31, 2009. Markets got euphoric when it was clear the UPA could form a government on its own and hit the upper circuit on May 18. Strong foreign money flows into India following the quantitative easing in the US helped push the Indian stock markets for the rest of the year. The Indian equity segment saw a whopping $15 billion in inflows in 2009 from the day after the election results.

The last election year, 2019, was sluggish among the four in which the benchmark indices were up in the range of 4-5 per cent. The global markets struggling to recover after the crash in 2018 due to the US-China trade war, continuous rate hikes from the US Federal Reserve weighed on the stock markets in 2019. Indian markets underperformed due to weak economic growth.

Sector performance

Irrespective of the trend before elections, the Consumer Durables, Information Technology and Banking sectors have always made it to the top five list of best performers after the elections. Indeed, the Banking sector had been among the top five in three out of the last four times in the period ahead of the election results. The Consumer Durables and the IT sectors made it to the top five in two election years for the period before the election results.