The Indian market has been witnessing a rough phase since the beginning of the pre-election year, but there could be a stop to this volatility, if history repeats.

Yes, you’ve heard it right!

Right now, the market seems nervous with less than a year to go into the 2019 general elections and developments at home are not unfolding as expected.

At the same time, global events such as trade tension between USA and China, rising crude oil prices, USA pressurizing countries to cut down purchase from Iran, tension between USA and North Korea and currency devaluation of Turkey has added to the condition of misery.

However, if history is to be believed, then the Indian market has gained in five instances out of eight in the pre-election year since 1989

In the three cases where the market has lost, the maximum loss was in 2009 where the market corrected as much as 4800 points due to the financial crisis of 2008.

Performance of Sensex during the voting and pre-voting year

Impact of 2019 elections on the economy

What’s happening in the Indian Economy? 

We believe that the Indian economy is a classic example where you can see real democracy.

For an economy of this size, it is nearly impossible to transform the growth agenda of an economy in merely five years.

Thus, judging the performance of the current government’s progress may not be the right reflection of their capability.

The Indian financial system has suffered due to the period of policy stagnation at the center during the UPA – II era – an era which was marked by scams and corruption.

What the government has done so far is to inculcate a new course to get the economic momentum back through various measures.

The passing of critical reforms such as Insolvency and Bankruptcy code, monetary policy panel structure,Goods and Services Tax (GST), Real Estate (Regulation and Development) Act (RERA), Make in India, Bank Non-Performing Assets clean up, subsidy rationalization, start-up push, privatization of public sector undertakings are some of the critical steps that the economy witnessed after a long-haul.

While some of these such as the GST and RERA have started to show results, the full pace execution is yet to be seen for others.

Also, the land and labor reforms still remain untouched.

Thus, one can never deny that PM’s term at the center has offered a new direction to the economy.

In fact, the government has managed to score well on the reforms-front that has helped it get a notable spot in the global map.

What to expect from the 2019 General Elections?

Coming to what is happening on the ground, we believe that the recently conducted Karnataka elections didn’t help much in re-gaining lost confidence among the investor community.

While Bharatiya Janata Party has emerged as the single largest party in the state, they failed to cross the magic figure required to claim the stake.

Going ahead, the market will face elections in BJP-ruled Chhattisgarh, Madhya Pradesh, Rajasthan, and Mizoram.

We believe this voting process will set the stage for what an investor can expect for the general elections that are due next year.

As seen historically, the market has had enough unstable coalition – as in the case of 1989, 1996 and 1998. During this period, the market didn’t show much respite.

So, the first impact could come in valuations, whereby, Nifty, that is trading in 20-25x P/E may see a good correction as sustaining these rich valuations may be difficult.

After that, a reform-oriented government that could take India on the global map would be the launch pad from there on, until 2024. 

Check out the key highlights of the 2018 budget and what the experts have to say about it

In conclusion

Thus, to conclude, if the opposition remains united over the next few months and if the government in power tastes losses in the crucial state ballot, the market would be the first to witness pessimism, warranting a sell-off.

It is hard to predict what kind of an impact the General Elections of 2019 will have on the Indian economy and please note, we, at Groww, are not responsible for predicting the outcome of the general election.

Our expertise lies in offering investment solutions with an unbiased opinion.

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww