When BJP entered the political stage in 2014, India was reeling in what we may call an economic crisis.
Our country was in the “Fragile Five,” along with Brazil, Turkey, South Africa and Indonesia. The currency was bleeding in comparison to the dollar.
The foreign exchange reserves of India had decreased tremendously as investors made sharp outflows from emerging markets.
The U.S Fed began withdrawing money stimulus, the Current Account Deficit as well as inflation was out of control. This was accentuated by the fact that the oil prices had shot up to new highs as India is heavily dependent on oil.
It was during this time that a serious question was raised on the then government in power i.e. UPA (United Progressive Alliance led by Congress).
As the share markets were reeling under such heavy bleeding by the outflows of foreign institutional investors, a new government led by Narendra Modi emerged.
As the General Elections of 2019 comes near, investors across the nation are wondering how it will affect the stock market
What were the expectations
It was expected by the financial gurus, FIIs, retail investors and common people that a change would happen in the coming days with the onset of the new government.
As soon as the Modi government came to power, there was a huge cheer in the markets as FIIs, DIIs flocked to get their share of pie.
A slew of reforms such as GST, demonetization, Aadhaar card issuance, infrastructure and rural spending, a vigorous step to improve foreign relations was taken up by the government.
The government’s reforms were also supported by other variables such as oil prices which fell drastically since 2014, domestic institutional investors (DIIs) beating the investments made by foreign institutional investors, etcetera.
We can also look at the performance of Sensex in the past four Lok Sabha elections in order to gauge the performance of what it has been like in the markets just before the voting year.
|Election Year||Sensex Points||Preceding Year||Sensex Points||Difference|
|September 3, 1999||4709||September 3, 1998||2918||1791|
|April 19, 2004||5800||April 17, 2003||2984||2816|
|April 15, 2009||11284||April 15, 2008||16153||(4869)|
|April 4, 2014||22359||April 3, 2013||18801||3558|
We can witness the following by looking at trends that have emerged six months after the election results:
|Year||Part in power||Consequence (After six months)|
|2004||UPA (United Progressive Alliance)||The Sensex shot up by 13 percentage points after the public viewed Dr. Manmohan Singh and P Chidambaram as reform-friendly.|
|2009||UPA (United Progressive Alliance)||The Sensex was at par with no major policy change as compared to UPA-1.|
|2014||NDA National Democratic Alliance||Policy reforms undertaken by the Modi government at the initial stage such as fiscal consolidation, curbing of inflation drove the Sensex by 9 percentage points|
India: 2013 vs 2018
The results, however, have been positive in the markets, until now.
The Sensex during 2013 was at an odd level of 24,000 and jumped to 34,000 as of October 2018.
However, given the recent happenings in the market with the IL&FS saga playing out, it led to a disastrous effect in most NBFCs.
Financial Pundits today compare our situation much like 2013.
With the USA Federal Reserve on money tightening mode, oil prices shooting up by more than 50 percent since the last year, rupee which in 2013 was hovering around 53 has even touched a new level of Rs.74 this financial year.
No doubt the performance of the rupee has been highly shocking and it has been the worst performing Asian currency dropping its value by more than 12 percent this fiscal.
The reaction can be seen by RBI as it has been selling its foreign reserves to support the value of rupee and the government has been trying every possible move to meet its fiscal deficit before the ballot in May 2019.
At the same time, global investors were betting big on investing in India after a stable government came to power in 2014, but this trend has changed largely owing to global economic uncertainties, recent market juggle, and ensuing general elections.
However, one fact which remains in India’s favor is that the numbers are not as harsh as it were in 2013.
India today is the best-performing country with a GDP growth touching 8.2% in quarter 1 of the financial year 2019.
However, global growth is slowing this year. (International Monetary Fund cuts its global growth rate forecast from 3.9% to 3.7% for the financial year 2019)
How will the 2019 General Elections impact the stock market?
Now, we all have seen that share market in India is heavily based on sentiments.
And a ripe time when these sentiments are triggered is during the time of elections.
Times have changed drastically since 2014. Investors, markets and the so-called pundits are not sure about the outcome that India might witness in 2019.
These can be the deciding factors in the voting procedure:
1.The “Mahagathbandhan” in Uttar Pradesh will turn out to be crucial, as BJP had won 71 out of 80 seats in the last general elections
2. The state election of Rajasthan and Madhya Pradesh which is due later this year will also be the acid test for BJP
Exit polls believe that Congress has a better chance of winning in Rajasthan this time with equal chances for both parties in Madhya Pradesh and other North-Eastern states
3. Finally, the results will also depend on how BJP is able to sway support from other key parties in other states.
This will be difficult as Shivsena has already stated that it would not support BJP in the upcoming elections.
Therefore, BJP has to look at opportunities in states such as West Bengal (BJP had won just 2 seats out of 43 in 2014 General Elections), Tamil Nadu, Telangana and Andhra Pradesh (by forming an alliance with TDP) to make up for the loss of seats in UP, Rajasthan, and Maharashtra.
Chances seem to be less for BJP to come with absolute power during the upcoming elections.
Modi Government has faced a series of setbacks, the latest being the failure to form the government in Karnataka.
Markets always prefer a stable government under a strong leader as compared to a weak coalition incapable of implementing big economic reforms.
However, it will be very crucial depending on how successfully the BJP government is able to implement the Minimum Support Price (MSP), to garner the votes of farmers and at the same time announce some more infrastructure push as is the norm for most governments before the election year.
Wrapping it up
Now that most people are uncertain about how the situation will pan out in 2019 and how the markets have been behaving lately, it is advisable that investors take a cautious stance before investing their money in the market.
The impact of General Elections of 2019 will be unpredictable because national sentiment cannot be judged. Share markets may/may not be volatile, but as an investor, you must judge the market before investing
Whenever there has been volatility in the market, people have opted for consumer stocks which have turned out to be a safe haven.
Also, given the correction we have seen lately in the markets whereby most shares have been hit badly, it would be nice for us as investors to have a look at this sector.
The rupee has seen a drastic fall in recent months.The market sentiment is not very buoyant, therefore risk aversion is slowly creeping in.
But timing the market will not bear fruit. You must simply be aware of your risk appetite.
Be careful. Analyze the market and then invest.
Disclaimer: The views expressed in this post are that of the author and not those of Groww