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Last Updated : Dec 12, 2017 11:04 AM IST | Source: Moneycontrol.com

Heads up! Since 2002, Sensex has slipped up to 8% in the 30 days after every Gujarat election

The S&P BSE Sensex rallied nearly 1,000 points in just three trading session suggesting a clean sweep by the ruling BJP government who has been in power in the state for over 22 years.

Prime Minister Narendra Modi being presented a sword by the supporters during an election campaign rally, at Dhandhuka village of Ahmedabad district on Wednesday. (PTI)
Prime Minister Narendra Modi being presented a sword by the supporters during an election campaign rally, at Dhandhuka village of Ahmedabad district on Wednesday. (PTI)

The way Sensex rallied in the last 3 days suggests that the market is factoring in the victory of BJP with a majority share in the Gujarat Assembly elections 2017.

The S&P BSE Sensex rallied nearly 1,000 points in just three trading session suggesting a clean sweep by the ruling BJP government who has been in power in the state for over 22 years.

Anecdotal evidence suggests that market rallied in 15 days prior to Gujarat polls in the last 3 out of 4 election years. The S&P BSE Sensex rallied 7 percent in the year 2002, followed by 2 percent gain in 2007, and 6 percent rally in the year 2012. The index slipped marginally in the year 2017.

Pollsters, political pundits as well as punters are largely predicting a win for the incumbent Bharatiya Janata Party in Gujarat. BJP has always emerged with majority share since 2002 and in 2017 it is likely a similar performance will be repeated but it may not be a thumping victory this time around.

1

The 2012 Gujarat legislative assembly elections were held in Gujarat in December in 2002, 2007, 2012 and 2017. For the year 2002, polling was recorded on December 12 in one phase while for the rest of the year it was conducted in two phases.

In 2002, 2007 and 2012 Gujarat elections, the Congress got less than 40 percent while the BJP got around over 60 percent vote share each time. But, Congress plans to disrupt BJP’s winning spree in 2017.

Most analysts and economists have been vocal about the possible impact of recent reforms such as demonetisation and the goods & services tax (GST), which hit the business community of Gujarat, impacting election outcome in Gujarat. Even a swing of 3-4 percent vote share could be a game changer but that is something which market is anticipating.

2

Punters are betting that the ruling Bharatiya Janata Party (BJP) will once again form the government in the state despite a tough fight from the Congress. Around Rs 500-600 crore of bets have been placed on the Gujarat Assembly election 2017, according to reports.

As per the odds, the BJP is likely to form the next government but would get fewer number of seats compared to the last election. A single rupee bet on the BJP winning 110 seats would get Rs 1.50 paisa, Rs 3.50 paisa for 125 seats and Rs 7 for 150 seats, a bookie told Moneycontrol.

“For the current year, a win from BJP seems largely factored into the price, so a BJP win might not move the needle too much. An upset on the other hand could take markets lower,” Nikhil Kamath, co-founder & head of trading, Zerodha told Moneycontrol.

What happens post-Gujarat polling?

The story changes dramatically once the polling is over. The S&P BSE Sensex which was trading in positive before the polling has come under pressure in two out of three election years.

Anecdotal evidence suggests that Sensex has fallen up to 8 percent in the next 30 days or 1 month after polling is over in the state of Gujarat. The S&P BSE Sensex slipped 1.6 percent in the year 2002 while it plunged as much as 7.8 percent in the year 2007. The S&P BSE Sensex rallied 3.2 percent in the year 2012.

Analysts’ are not ruling out a possibility of some profit booking once the election results are out. The results will be declared on December 18, 2017, Monday.

3

“It is possible that market may correct post-Gujarat elections outcome, depending upon who forms the govt and what's the victory margin. If BJP wins with a narrow margin, the market may be circumspect on the pace of reforms going forward,” Hemang Jani, Head - Advisory, Sharekhan told Moneycontrol.

Over 68 percent turnout was recorded in the first phase of polling for 89 Assembly seats that voted on Saturday in Gujarat. The second phase of polling in 93 seats will be held on December 14 while the counting of votes is scheduled on December 18.

The market is expected to remain rangebound until 18th December, Monday and could see price action on either side depending on the results.

A win by Modi in Gujarat is unlikely to move the markets higher too much based on this news alone but a loss and upset from BJP could take the markets lower.

“Market has the tendency to discount the events, it is much expected that BJP will lead the show and after effects of markets is nothing but the profit booking for short-term investors or traders,” Chirag Singhvi, Analyst – Fundamental Research - KIFS Trade Capital told Moneycontrol.

“In Long run, we are bullish on Indian markets, the growth story will continue in the years to come. December month has usually been seen in the hands of sideways so being on the safer side it is advised to stay stop specific,” he said.

What should investors do?

The overall market trend is still on the higher side and in case the market does correct, then it would be a great buying opportunity for long-term, suggest experts. The valuations look pricey at current levels; hence, a cut could not be ruled out in the short term.

“Valuations of Nifty, PE, is already above 26.4 levels which is historically as same as levels we have witnessed in 2008 and 2000 and a major correction followed. It is a matter of time we see some mild correction on any upside towards above-mentioned levels,” Mustafa Nadeem, CEO, Epic Research told Moneycontrol.

“Structurally as well, we have completed a major harmonic pattern. In 2008 we saw some kind of cyclical correctio0ns that helped market to realign its valuations. Overall, we are bullish on key levels of 9100 - 9200 as they will act as a point of polarity,” he said.

Nadeem further added that in a market with the overall return of over 50 percent in the last three years, a mere correction of over 10 percent is justified. “We will be bullish for the market with a price appreciation of over 25 percent once that correction happens and an overall upside from those 9100 levels will be towards 11500 in 2018 for Nifty,” he said.

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First Published on Dec 12, 2017 09:02 am
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