Money and power collide every five years at the intersection of Indian Stock Market and New Delhi, as India votes for its 15 Lok Sabha, So much is at stake: Indian foreign policy, India GDP growth, market friendly reforms could all undergo radical changes if Modiji wins.
The outcome of the election will also impact the stock market.Some forecast a bull market if a NDA wins lead by Modiji, while other predict that a UPA led by Rahul Gandhi means stocks will decline.
A savvy trader might see an opportunity to put these theories to the test, based upon who they believe will become Prime Minister of the Great Nation India, If this trader bets on the right theory and the right winner, he or she could position himself or herself to make a lot of cash.
Now as we do not have crystal ball to predict, but as a technical analyst I firmly belive past price action gives an idea what can happen in future, let us see how market behaved in past before/after election result so as to understand market behavior and get an inkling what can happen in 2014.
1996 was a Hung Assembly as Both BJP and Congress did not got majority, BJP got 161 and INC got 141. As BJP won highest seat A B Vajpayee took the initiative to form government, but the government lasted for only 13 days and Janata Dal leader Deve Gowda formed a United Front coalition government on June 1. His government lasted 18 months.
Nifty reaction with Swing High and Low is shown in below chart
As shown in above Nifty chart , 16 May 1996 Vajpayeeji took over as Prime Minister and Nifty started correcting the same day, Blue arrow denotes Janata Dal leader Deve Gowda formed a United Front coalition government on June 1 and market started rallying.
To Summarize, Nifty movement well discounted the Before the event occurred.
I K Gujral, took over as Prime Minister in April 1997 after the Congress agreed to support a new United Front government from the outside. But Gujral was a stopgap arrangement. The country would go to elections again in 1998.
If you see the above chart market again reacted prior to the news Before the Major Event Market corrected 20% in 18 Trading days.
On Oct 6,1999 , Vajpayee got majority market was rising before election results were out and once it was officially declared Market reacted with 5% move on election date and rising almost 12% before top was made on 14 Oct
In election year 1999, the Nifty gained 8 per cent from August beginning up to the election date, October 6, gained another 5.5 per cent on the results day, October 7, and lost 14 per cent till the end of October.
The pre-poll predictions were for an overwhelming majority for the BJP, the exit polls (immediately after the elections and before the counting began) predicted a hung parliament. However, even the exit polls could only indicate the general trend and nowhere close to the final figures.
Nifty got a whiff of results beforehand formed a top at 1912 on 23 April and started correcting took 16 days for a 32% fall before a major bottom at 1292 was made.
In election 2004, the Nifty corrected by 15 per cent from March beginning till the election day – May 15. It corrected by further 12per cent on the results day. So, the index lost 32 per cent from March till the result .
This year pre Poll election results showed an hung parliament but for a surprise UPA Led by congress formed the government after obtaining the majority of seats based on strong results in Andhra Pradesh, Kerala, Maharashtra, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal. Manmohan Singh became the first prime minister since Jawaharlal Nehru in 1962 to be re-elected after completing a full five-year term
Market was so overwhlemed with Results that First time ever Indian markets hit an Upper Circuit.
During the election in 2009, the Nifty gained 37.3 per cent from March beginning till the election date — May 15. It gained 17.7per cent on the result day and another 5 per cent till the end of May. Overall, the market gained 69.4per cent from March 1, 2009 to June1, 2009.
Nifty after hitting the low of 5933 has seen a jump of 925 points of 13% till date and rallying expecting an stable alternative government in center.
17 Trading days are still pending and as seen from past election following can be concluded.
1. 23-26 April will be very crucial, If nifty forms a top in this range than we can see some profit booking coming in and trading in a small range with volatile moves till 12 May when exit polls results will come out.
2. If BJP comes up in power we will see a 5-8% of upside reaction on 16 May or 19 May than market will consolidate for some time and might start correction as happened in 1999.
3. If Hung assembly we can see a down move of 20+% in very short time frame.
So we will see a big swing of around 500 + Nifty Points coming in next 20 trading session so traders are requested to trade with extreme caution as these events can make or break a trader.
Comments are invited from readers.