The recent state elections have set the stage for the upcoming 2024 showdown. With the ruling Bharatiya Janata Party’s (BJP) pounding victory in 3 out of 4 states — Rajasthan, Chhattisgarh, and Madhya Pradesh while failing to shine in Telangana, speculation grows around a potential third term for the Modi-led government. This has set the financial world buzzing with anticipation, too.
As the election’s influence extends beyond the corridor of politics and impacts the country’s economy, the first ripples of change are already visible. The Indian rupee has flexed its muscles against the U.S. dollar after the BJP’s decisive wins. According to Bloomberg data, it gained two paise, opening at ₹83.28 against the U.S. dollar after concluding at ₹83.30 the previous week.
How the General Elections will Impact the Stock Market
As the largest democracy thrives on the thrill and fervor that general elections promise, we’re just 6 months shy of the mega electoral event of 2024 set for April-May. Here’s an insider’s look at how this political wave could shape your financial future.
Morgan Stanley’s recent report suggests these market outcomes post-elections:
- A potential gain of up to 5% within three months post-election if the current government secures a clear majority
- A decline ranging between 5% to 25% in case of a coalition government forming
- A plummet by a staggering 40% should the BJP government lose and secure fewer than 200 seats, resulting in a weak coalition.
Before we go further, it would help to remember that the lead-up to general elections and the period shortly after usually heightens volatility in the stock market. The sense of caution among investors that prompts a “wait-and-watch” stance triggers fluctuations in stock prices. The uncertainty of the election results and changes at the policy level increase this volatility.
The stock market’s response to election outcomes is instant and dramatic. A stable government offering a clear and sure mandate tends to instill confidence in investors, resulting in favorable market responses.
Here’s what to expect:
- Positive Sentiment Surge: Brace yourself for a possible bullish market ride! Analysts predict unprecedented highs as the BJP’s triumph fuels optimistic market expectations.
- Foreign Investment Influx: The government’s win is like a beacon for foreign investors, making India irresistibly attractive. Prepare for a potential influx of foreign capital into local equities, amplifying your investment opportunities.
- Policy Consistency Confidence: Say goodbye to market jitters! The election outcomes ensure policy consistency and skyrocketing confidence among global investors. Your India allocations just got a stamp of stability.
- Stability Bliss: A stable government equals a sound economic playground. It’s music to investors’ ears, setting the stage for a positive stock market dance. Stability is your new investing best friend.
- Infrastructure Boom: Hold tight for a construction spree! The BJP’s infrastructure focus means increased spending in the sector, translating to golden opportunities for companies involved in groundbreaking projects.
- Banking Bonanza: Lower interest rates are on the horizon! A stable economic environment could pave the way for reduced interest rates, blessing the banking sector. Your stocks may just get a potential boost.
- Earnings Extravaganza: The economic stability spell extends to corporate earnings. Brace for a surge as stability fosters a conducive environment for companies to flourish, spelling good news for your stock market gains.
In a dramatic turnaround, foreign portfolio investors (FPIs) flipped from sellers to champions in November. The allure of eased U.S. Treasury yields, coupled with the unwavering strength of the domestic market, propelled FPIs to inject a whopping ₹9,001 crore into Indian equities.
So, brace for the ongoing surge, as the government’s recent electoral triumph is poised to supercharge investor confidence, painting a vibrant picture for the months ahead. The financial stage is set, and the spotlight is on an investment landscape with potential!
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.