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How much return do we expect from the stock market now that the elections are over?

Posted on 12 Jun 2024
Author: Sayan Sircar

Tags: Market Movements

6 mins read
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This article uses historical data to estimate returns expected from the stock market post-election.

How much return do we expect from the stock market now that the elections are over?

This article is a part of our detailed article series on Election 2024 and the following market gyrations. Ensure you have read the other parts here:

What do you need to make money when the stock market suddenly drops like 4th June 2024?

This article discusses the strategies needed to profit off sudden market falls like that happened on election results day on 4th June 2024.

5.93% Fall in the Nifty: What Does Election Result Day Teach Us about Risk in Our Portfolio?

This article talks about the volatility in the stock market on 4th June 2024, which was the day of election results.

Navigating Election Uncertainty: Should You Sell, Hold, or Buy More Stocks?

This article shows you the pros and cons of each approach you can take between today and the General Election Results next week regarding your portfolio.

📚 Topics covered:

When can we measure the impact of elections on the stock market?
How did the share market behave before the Lok Sabha Elections?
How did the share market behave after the Lok Sabha Elections?
What can we conclude from these results?

When can we measure the impact of elections on the stock market?

SENSEX and Election Results

Stock trading started in India in 1875 with the “Native Share and Stock Broker’s Association” which later became the Bombay Stock Exchange (BSE). However, the SENSEX index with 30 stocks started in 1979 allowing us to measure the impact of election results on the stock market since the 7th Lok Sabha elections of Feb 1980.

Election	Year	Result on
7	1980	Wed 06-Feb-80
8	1984-1985	Sat 29-Dec-84
9	1989	Mon 27-Nov-89
10	1991	Sun 16-Jun-91
11	1996	Wed 08-May-96
12	1998	Tue 03-Mar-98
13	1999	Wed 06-Oct-99
14	2004	Thu 13-May-04
15	2009	Sat 16-May-09
16	2014	Fri 16-May-14
17	2019	Thu 23-May-19
18	2024	Tue 04-Jun-24

In this analysis, we will use the value of the SENSEX Total Return Index that shows the price change of the 30 SENSEX stocks (the usual SENSEX that you see everywhere) and reinvests the dividends from these stocks back into the index. This adjustment gives a complete picture of the returns for an investor who benefits from both stocks going up in price and the dividends they declare.

We are using the median (middle value from a list) instead of the average of the returns to avoid impacting the result due to extreme values in the 1980s to 1990. The charts below show the changes in the SENSEX index measured from the election result declaration day.

Stock market movement leading upto a Lok Sabha Election

The chart indicates a trend of increased volatility in the stock market in the periods leading up to the Lok Sabha elections. Volatility can be a trader’s friend or that of the disciplined stock investor with a watchlist of stocks and spare capital.

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Stock market movement after a Lok Sabha Election

What can we conclude from these results?

Effect of Lok Sabha Elections on the Stock Market In India

Stock markets are affected by elections more in the short term than in the long term. In the long term, the market prefers a stable government and consistent policies.

In the short term, both leading up to and post the elections, there will be considerable market volatility.

Long-term investors should take comfort in the India growth story and continue to invest as per their investment plan. The election period is nothing but a blip in the journey.

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