Stock market movement prior and after Lok Sabha election

In our last post Nifty reaction to Lok Sabha election results we had a discussion on various scenarios which are possible. Lets discuss who can an “Investor” also use the Lok Sabha election event to rejig portfolio.

In an election year, equities usually go up in the run-up to elections, and Market will always give Thumb to clear mandate the trend continues.

Data since 1991 show that equity markets usually go up before general elections. Barring 2004, when they fell 11 per cent in three months prior to the elections, they have risen before all elections since 1991-24 per cent ahead of 1991 polls, 7 per cent in 1996, 6 per cent in 1998, 14 per cent in 1999 and 27 per cent in 2009 as shown in below chart.

The interesting thing is that most of the times the trend continues after the elections as well, so for investor waiting for a correction or dip should be cautious as market may not give any dip if Modiji becomes the PM of the country.

Another important observation which came out of study is market like clear mandate and stable government and rally continues and if we have coalition or unstable government comes to power  market corrects in 3 month period.

• Equity markets rose 44 per cent in three months after the P.V. Narasimha Rao government came to power in 1991.
• 15 per cent after the National Democratic Alliance (NDA) came to power in 1999.
• 32 per cent after the United Progressive Alliance won in 2009.
• Market fell 8 per cent in three months after the Third Front formed government in 1996.
• Market fell 12 per cent after the BJP formed a government in 1999.
• Market fell 3% when UPA-1 came to power.

Sectoral Performance is also shown below

Clearly High Beta Sector are the flavor of Investor/trader.  So if Modiji becomes PM, Realty,Metals stock will be in focus on traders/investor radar. This time PSU’s stocks should also be on radar, as revival of economy PSU’s will benefit the most.

From fundamental perceptive also  Sensex crossing 21,000 , Sensex was trading at a 12-month forward price-to-earnings multiple of 24.6 times but today at 22,600 Sensex was trading at a 12-month forward price-to-earnings multiple of 19.6 times which is quiet reasonable and lot of scope for upside.