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As is the case now, equity markets always tend to be highly volatile around the time of election results. However, they invariably turn lucrative six months down the line. Sample this: the benchmark Nifty50 index has always turned positive on a six-month forward basis from the election results day since 2004. The average return for the previous five election cycles is 10.2 per cent. Barring 2019, the broader market Nifty Midcap 100 and the Nifty Smallcap 100 indices have also generated positive returns six months after Lok Sabha elections.
Even in 2004, when benchmarks collapsed 20 per cent after the National Democratic Alliance’s (NDA’s) surprise defeat, the markets recouped all the losses to generate positive returns in six months and a year later.
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On Tuesday, the markets tanked 6 per cent after the Bharatiya Janata Party (BJP) failed to cross the halfway mark in the Lok Sabha elections, stoking concerns over the effectiveness of a coalition setup. On Wednesday, the markets recouped more than half of the losses. If history is to go by, election-related weakness can be a good buying opportunity.
“The BJP has successfully run a coalition government from 1999 to 2004 and 2014 to 2024. Note, in the 2004 election when a Congress-led government came in with support from the Left party, markets were worried about an unstable coalition. Benchmark indices hit lower levels post the result, but within six months, the markets had recouped all losses and staged one of the biggest bull runs up to 2007 led by strong economic momentum. Historically, the Nifty has delivered +9 per cent/+8 per cent in the 3/6 months post general elections since 1991, showing that in the past a correction or dip has typically ended up as a buying opportunity over the longer term,” JP Morgan said in a note.
