As India gears up for the 2024 general elections, the sentiment on Dalal Street is also turning cautious. The outcome of the election will be a pivotal event and is likely to have a major influence on the Indian stock market, as it holds enormous sway over investor sentiment, shaping expectations and political trajectories.
The equity benchmark indices, Sensex and Nifty 50, are currently facing increased volatility. This is expected to continue until the general election results are announced, probably in mid-May.
In the past six months, the Sensex has gained over 11%, while the Nifty 50 has gained over 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 advance strongly on a 6-month basis in the election results.
Nifty 50
On a quarterly basis in the election results, the Nifty 50 closed in the green four times, registering an average upward movement of about 10.7%, according to a report by JM Financial. The maximum positive movement of about 25% was observed in 2009 while a minimum positive movement of 8% was observed in 2019.
The index closed in the red in 2004, down about 10%. However, it was followed by a massive recovery from June 2004 onwards.
Read also: Wipro shares trade at expensive valuation, offer little margin of safety, says Kotak Equities; downgrade to “Sell”
Bank Nifty
The Bank Nifty closed in the green on all four occasions (the index did not trade during the year 1999) with an average upward movement of about 21%, data compiled by JM Financial showed.
It closed flat in 2004, while the highest yield of about 46% was observed in 2014.
Further, the Bank Nifty has outperformed the Nifty 50 on all 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 minimal trading history since 2004 and a total of 119 such stocks were identified.
From these 199 identified stocks, the 10 potentials were identified as the potential outliers, with the ranking 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 possible outliers, with the ordering 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 (VELO).
The historical analyzes of the past five general elections reveal interesting trends in market movements, with Nifty 50 and Bank Nifty showing remarkable 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 will become paramount for investors.
Disclaimer: The opinions and recommendations made above are those of individual analysts or trading companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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Published: 28 Feb 2024, 15:48 IST