Beating the election blues

Investors are banking on rural and IT stocks to tide over a volatile market ahead of elections next year

On May 15 at 10:20 am, early trends of the Karnataka Assembly elections showed that the BJP was leading in a Congress-ruled state. Subsequently, the Sensex rose 350 points, and Nifty breached the 10,900 mark for the first time since February 2. With the BJP all set to make inroads in a southern state, investors interpreted this as a sign of a majority government returning to power at the centre in 2019. 

However, as the BJP struggled to reach the halfway mark of 112 seats and uncertainty loomed, the market turned volatile and entered into negative territory. While the Sensex fell 451 points from the day’s high of 35,993, the Nifty plunged 128 points from an intra-day high of 10,929. 

Ravi Muthukrishnan Head – institutional research, Elara

Ahead of the 2019 General Elections, Rajasthan, Madhya Pradesh, Chhattisgarh and Mizoram will go to polls later this year. Analysts believe that political uncertainty will chart the market’s course over the next one year. “Political risks are adding to the already heightened macro risk environment. To that end, a loss in incumbent states such as MP and Rajasthan will add to the market uncertainty,” says Ravi Sundar Muthukrishnan, head – institutional equity research, Elara Capital.

Historical data reveals that the market is extremely volatile in the year before the General Elections. However, after the polls, the market generally stabilises and scales new heights. As a united Opposition continues to catch up with the BJP, foreign brokerages and research houses expect political uncertainty to fuel market volatility this year. In its report on how investors must manage political risk, Morgan Stanley Research warns, “the market enters the 2019 polls with a majority government already at the helm. So, it has to deal with the prospects of a weaker government at the centre.”


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