Historical analysis of past 3 general elections reveals that election years are good for the equity markets with positive returns in each of those calendar years, Elara Capital said in a report.
The S&P BSE Sensex might have lost about 2000 points so far in the month of May or just days ahead of the verdict on May 23rd, anecdotal evidence suggests that the elections year has been generally good for markets.
Historical analysis of the past three general elections reveals that election years are good for the equity markets with positive returns in each of those calendar years, Elara Capital said in a report.
In all three previous elections, market returns have been higher in the post-election period, compared to pre-election period. Current CYTD Nifty return is moderate at 8%, providing ample scope for post-election rally, added the report.
The report further added that at a sector level, while pre-election performances is a mixed bag, post-election rallies have been broad-based with positive returns for almost all sectors. The only exceptions being energy in 2014 and telecom in 2009.
The trend of a spike in volatility pre-election is playing out currently. Based on past evidence, the volatilities cool-off post elections.
Benchmark indices rose by about 8 percent ahead of elections while there is some uncertainty as we head towards the D-day. It looks like the market is pricing in a continuation of the current political dispensation in the 17th Lok Sabha, but a kneejerk reaction cannot be ruled out in case NDA fails to get a majority, said the report.
“While an immediate upside to market due to re-election of the incumbent government will be limited, there could be sharper downsides if NDA fails to get a majority,” said the report.
The analysis of past three general elections reveals that election years are good for the markets. The analysis also reveals that in all the three previous elections – post-election market returns are higher than pre-election period.
The CYTD Nifty return is 8 percent, providing ample scope for post-election rally, and the recent correction in May gives ample room on the upside if NDA manages to gather absolute majority.
Sectors which have done well post elections include IT, metals, auto, midcap, capital goods, as well as banking stocks.
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