As India sets election dates, traders brace for stock rally

The election commission has set April 7 as the start of parliamentary elections, with voting to be held in nine staggered phases until May 12. If history is any guide, investors should be very much looking forward to it.

The benchmark BSE Sensex has gained in the month before elections in each of the previous six elections, with the biggest advance coming in 2009 when the Congress-led United Progressive Alliance won a majority.

The gains in the run-up to elections can be explained by a mix of expectations for policy reforms and election spending, according to traders.

Traders expect especially strong gains this year as solid foreign investor flows, a more stable rupee on the back of a narrowing current account deficit are more than offsetting global uncertainties such as the US Federal Reserve's tapering of its monthly bond buying.

Still, although markets widely expect a victory for the main opposition party BJP, whether it can clinch a majority could be the joker in the pack, although similar uncertainties about outcomes in previous elections have not prevented gains.

"A pre-election rally is definitely underway. Flows, positioning, macro are all pointing towards its extension in the coming months," said G Chokkalingam, founder of Equinomics, a research and fund advisory company.