The general election in India is one of the most important events in the calendar of the country. This event selects the very government that will govern the country.
A change in the government can impact the investment stream of cash flows at the sectoral level. For example, the previous government might have pushed the infrastructure sector for the development of the country whereas the new government might want to allocate more funds to the agricultural sector.
In this article
- Why do elections impact the stock market so heavily?
- Factors affecting market post elections
- Stocks that can be affected due to election
- 10 stocks that might experience an upswing post-election
Why do elections impact the stock market so heavily?
Let’s take a glance at how historically the stock market return moved with swings in terms of market return with respect to various government.
|Government||Start||End||Tenure||Market Return %|
|Cong: PV Narasimha Rao||June 91||May 96||4 year 11 months||24.46|
|NDA: Atal Bihari Vajpayee||May 96||May 96||13 days||2.3|
|United Front HD Deve Gowda||June 96||April 97||11 months||3.1|
|United Front: I K Gujaral||April 97||March 98||10 months||1.3|
|NDA: Atal Bihari Vajpayee||March 98||May 04||6 years 2 months||3.31|
|UPA: Dr Manmohan Singh||May 04||May 14||10 years||17.66|
|NDA: Narendra Modi||May-14||Till date||4 years 5 months||10.68|
Markets move by political decision and reforms made by the government.
Kaplan in his research work in 2006, stated that incumbent politicians stimulate the economy prior to elections to secure re-election causing a post-election economic slowdown. However, this was in the U.S. context.
In the paper “Impact of General Elections on Stock Markets in India” by Ch. Balaji, G.D.V. Kusuma, B. Ravi Kumar, the research shows that an individual election has the maximum impact (positive or negative) in the short-term. This impact gradually diminishes in the medium-term and further reduces in the long-term in comparison to the pre-election period.
Factors affecting market post elections
- Political Unrest: Politics has been a major factor in moving general sentiments of the market. During election time, this factor is at its peak.
- Outlook gap: People who are in favor, invest more. And those who are not in favor, short their position. This is due to the negative outlook they see for the country’s future.
- Economic reforms: The present and previous government may have sets of different reforms which change in such a manner that it may lead to inflation in the country or may act as a hindrance in country’s operational activities. E.g. taxes, duties, etc.
- Macroeconomic factors: Elections also have an impact on global tie-ups leading to either a boost in the trade or a temporary slowdown.
- Sectorial focus: the new government elected might temporarily halt investment in a particular sector.
Stocks that can be affected due to election
India being a consumption-oriented country, sectors that are directly linked to consumption utilities over services utilities are impacted first. Stocks in the sector of IT, pharma and automobile sector may see some movements.
Another very important sector is the lackluster manufacturing sector which gets impacted early. This is then followed by financial sector stocks.
Generally small and mid-cap stocks get impacted more when compared to large-cap stocks.
10 stocks that might experience an upswing post-election
|Sr. No||Stock Name|
|8||Amara Raja Batteries|
|9||Delta Corp Ltd|
|10||GMR Infrastructure Ltd|
1. Kellton Tech
This company is involved in the outsourcing business. The company has delivered consistent profit growth of 78.6% over 5 years. This company is a booming company with consistent growth in sales because of its grand success in the main line of business in digital transformation.
The company has also gained expertise in disruptive technologies like IoT, Artificial Intelligence, etc.
Birlasoft is an emerging business unit in the Information and technology sector. With price fall post in September due to the market correction, there are chances to see a mean reversal. It has recently merged with KPIT, one of the better technology companies out there. The synergies of the merger might soon be reflected in revenues and costs.
Also, the market capitalization growth perspective is on a positive side.
3. Accelya Kale
This company is a leading digital solution provider in the space of the travel and transport industry. The company is debt free and has been a consistent dividend payer. The stock has been trading low and there are enough positive signs of mean reversal to happen. This company has been rated A+ by ICRA, a rating agency.
4. Delta Corp Ltd
Delta Corp Ltd is the only listed company in India to have its main business in gaming and live casinos. The company has recently reduced debts from its books. This signals a strong performance in the future by the company. Analysts have a positive view of this company.
5. Yes Bank
Yes Bank has very strong banking operational capabilities. With recent governance issues, the price had tanked to a very low figure. With the recent clearing of many doubts, it is supposed to bounce back strongly. Already, mean reversal signs have started to appear.
6. Sun Pharma
After a full year of ups and downs, Sun pharma seems to revive to its premium position. There are specialized drugs yet to be introduced in the market. Also, there seems a positive outlook for the pharma sector as a whole. These combined effects should pull the stock price up.
7. Infibeam Avenues
Infibeam Avenues Limited is an India based internet and e-commerce conglomerate. The company is also involved in e-commerce software, digital payments, online retailing and internet services. It is the only e-commerce company that has been making a profit. The company has started ventures and has made contracts. It has been able to reduce debt, this indicates a positive outlook ahead.
8. Aarti Industries
Aarti industries specialize in manufacturing specialty chemicals, pharmaceuticals, and personal care intermediaries. With an increase in consumption post-election, the demand for chemicals will increase. The company has recently seen a bull trend in the share price. Promoters or the owner’s shareholding has increased through buybacks. This signals a strong management control towards the growth of the company.
9. Amara Raja Batteries
Amara Raja Batteries is in one of the highest market shareholders in the batteries segment. With the E-vehicle push from the government as a part 2020 vision, the demand for the batteries will increase. This might positively impact the profit and increase the company’s market reach.
10. GMR Infrastructure
GMR has been an iconic name in the area of infrastructure construction. There might be a strong push for infrastructure construction throughout India post the elections. There might be a bull rush as the prices have gone low. Hence, it might be a good decision to buy.
The stocks from IT, FMCG, and manufacturing may see a positive outlook in terms of market return. However, you should select stocks wisely. Only after doing the fundamental and intrinsic analysis should you go for a buy decision. Also, the selection should be based on our risk appetite.
Disclaimer: the views expressed here are of the author and do not reflect those of Groww.