We are moving towards central loksabha elections 2019. Being a financial advisor , all my investors and everyone to whom I meet nowadays , ask me only one question……
Kya Lag Raha Hai Market, Election k Bad…?
What If Modi not Elected..?
Market Crash to nahi ho jayega..?
Do u think on the same line….????
In short one common question worry us all that is..How the markets are likely to react after the outcome of 2019 elections.
I want to invest some money in stock markets and mutual funds ….
Should I wait till the election outcome is announced..?
As a answer of all the above questions of our investors we thought of collecting some data for our investors on how sensex has reacted after 1, 2, 3, and 5 years of government formation in the center. While we strongly believe that investment decisions are not made and should not be made based on election outcome possibilities, there is an interesting data trend which we got from the BSE Sensex movement during these samples.
Description of the data collected:
- All the loksabha elections post 1980. 1980 taken as the base year because the BSE Sensex data is available with a base value as 100 from 1979
- BSE Sensex Closing level was taken on the date of the govt formation
- BSE Sensex Closing level was taken after 1, 2 and 3 year of govt formation
- Absolute return calculation done from base year to 1,2 and 3 year
- 1 year return: There were 3 samples in 1 year period when BSE Sensex delivered negative returns where as all other 7 samples, Sensex delivered a minimum of 11% (in 2014) and a maximum of 126% ( in 1991) after 1 year of govt formation
- 2 year return: There was only 1 sample in 2 year period out of 10 when BSE Sensex delivered negative return (in Oct 1999) (see chart above)
- 3 year return: 2 samples when Sensex delivered negative return (1998 and 1999). 2 samples when BSE Sensex delivered more than 200% in 3 years. 1 sample each, the return was 180%, 87%,71%, 26%, 15% and 6% in 3 years respectively in descending order
Here in above slide you can find analysis of Bse sensex one year before and 2 years after the outcome of general elections in India. In 8 out of 9 times sensex was able to generate tremendous returns with a investment horizon of three years or more.
Interestingly, markets by and large delivered impressive returns in the three year period after the govt formation at the center notwithstanding which political party came to power or whether it was a coalition govt or a majority govt. Possibly the reason of higher returns in the first three years could be attributed to big bang announcements made by most govts which is usually taken positively by the market. This perhaps peters off in the last 1 or 2 years.
Your investment horizon is short? Nothing to worry…..
In a shorter time frame markets had moved positively and able to generate good returns for short term investors. Here in above slide a nice presentation of nifty 6 months before and after general elections.
Disclaimer: Please don’t make investment decisions based on this data and speak to your investment advisor before making any investment. Past returns may not be indicative of the future returns.