BJP seat wins, stock market: How Nifty fared one week, 30 days & six months after elections

The domestic stock market has delivered positive returns in five out of five recent Lok Sabha elections, one-year after the outcome. That said he market delivered positive returns in only two times while it delivered flat return in one and negative returns in two instances, one-month after elections, a data compiled by foreign brokerage UBS suggested.

The Prime Minister Narendra Modi-led BJP won 303 seats in 2019. It won 282 seats in 2014. This year, the incumbent party-led NDA is seen winning 370-410 seats as per opinion polls but there is a bit uncertainty in the market ahead of June 4, the day of election outcome.

"While the intensity of the impact on financial markets could vary depending on the election outcome, past instances suggest the significance of election results diminishes over the medium to long term. Market underperformance tends to reverse as both investors and businesses adapt to new government policies," UBS siad.

The domestic brokerage reiterated its view that significant weakness in equities could offer buy-on-dip opportunities. "Within fixed income, we believe medium- to long-duration bonds are in a sweet spot and could become even more attractive if bond yields spike in certain election outcome," it said.

In 2019, Nifty delivered 1.8 per cent return in the first week post election outcome. That said its return was flattish one-month post elections. In fact, it was down 7.2 per cent in six months post elections and its one-year return was minus 21.9 per cent.

In 2014, Nifty delivered a solid 3.5 per cent return when the NDA government came to power. It delivered 6.4 per cent return within one month of election outcome and 10.5 per cent return in six-month period. The 50-pack index was up 17.8 per cent in the year post election outcome.

2009 delivered the strongest returns post elections (among five).  Nifty was up 15.4 per cent within a week, 23.3 per cent within a month, a solid 39 per cent within six months, and 40.3 per cent return in one year.

In 2004, while Nifty logged 1.8 per cent return in the first week, it slumped 4.1 per cent within one month. It though recovered and went on to deliver 28.7 per cent return for the on-year period. 
 
In 1999, Nifty clocked 8.6 per cent return in one week, 6 per cent return in six months but a 5.6 per cent drop in one-year after elections.

UBS said if the election plays out as expected i.e.  BJP retaining power, it  anticipates policy continuity, macroeconomic stability, and the potential for further structural reforms, all of which could positively influence Indian financial markets.

"Any unexpected outcome will likely be perceived negatively at least at first, due to political instability and possible policy paralysis weighing on business sentiment and impacting investor confidence. This could trigger knee-jerk reactions in financial markets in the near term, with equity valuations possibly testing pre-NDA levels," it said.