Method to Madness

By Haresh Soneji, CNBC-TV18

Data since 1942 show US markets correlation with Presidential Elections. US markets bottom out on an average 1.9 months into Presidential Term. Build up during the election year is seem followed by sell off

Presidential Term                Market Bottom

1981 – 1984                               Aug-82

1985 – 1988                                Dec-87

1989 – 1992                                Oct-90

1993 – 1996                                Apr-94

1997 – 2000                                Aug-98

2001 – 2004                                Oct-02

Indian equity market follows the US Presidential election year cycle. This coincides with the '8-year itch' model of CNBC-TV18, which states that after every 8-years equity markets peak out. This is evident since 1984 and is based on 24 years of empirical data. Earlier, the markets peaked out in 1984, 1992, and 2000. Based on this theory, the next peak out is supposed to happen in 2008. 

It depicts that India has not decoupled with the US. The market peaks out during election year only to see sharp sell-off thereafter. The average recovery period is around 10 months.