Exit polls have been inaccurate in past elections, betting on them risky: Experts

Exit polls on May 19 predicted a second term for Prime Minister Narendra Modi. Investors cheered as this news sent Sensex on a 1,422-point rally on May 20, its highest single-session gain in more than 10 years. The index settled at 39,353, its highest-ever close.

However, experts recommend exercising caution in this environment, as it has a bitter precedent.

A note by the financial services company, UBS suggests exit polls have not been accurate in the general elections of 2004, 2009 and 2014, which led to undesirable market reactions. Analysts have advised market participants to be watchful for actual results on May 23.

2004

Exit polls after 2004 general elections predicted that voters would give the NDA government led by Atal Bihari Vajpayee another chance. Numbers suggested that that the NDA will get a majority.

However, on the day of the actual results, UPA emerged as the largest alliance with 222 seats, while NDA could manage only 189 seats. As a reaction to this, the Sensex declined more than 5 percent intra-day.

2009

Some exit polls indicated the possibility of a hung parliament, which unnerved investors. Others did predict the possibility that the UPA would get a majority, but they underestimated the victory margin.

Due to the possibility of bad news, Sensex declined 1.22 percent the day after exit polls. However, the investors were in for a surprise as UPA got 262 seats, a much stronger mandate than the exit polls had predicted. After this, the Sensex gained 17 percent—its biggest single-day gain ever.

2014

All outlets rightly predicted that the NDA would come to power. This led to a 1.36 percent single-day gain of the Sensex a day after the exit polls. However, the numbers had underestimated the victory margin of the NDA.

The BJP-led coalition won 336 seats, while the UPA couldn't even scrape through the 100-mark. The markets, after Modi's victory, saw a 1 percent gain.

2019?

Experts say that if exit poll numbers hold, it will help the equity market performance in the near term and investors can expect a robust rally. However, one must still wait for the final tally.

Bank of America-Merrill Lynch said that it is difficult to recommend portfolio changes before May 23, adding that after the elections, volatility may fall. Analysts also indicated that if actual results are fragmented, equities may take a substantial hit.