How will the markets react to the India General Elections 2024 result?

The India General Elections 2024 is one big hope for a better nation and a significant future. As we are done with the India General Elections 2024, standing at the crossroads, waiting for another big surprise, let's talk about how the markets will react to the upcoming unpredictability. In 2019, the financial markets reacted affirmatively to the general elections, after a clean sweep by the BJP and Narendra Modi's consecutive victory as the Prime Minister of India. The investors were thrilled to bits, and this optimism resulted in a surprising spike in the SENSEX by 1000 points and NSE NIFTY by 12,000 points. This was the instantaneous market reaction post-2019 general elections.

The Modi government has won the hearts of the Indian community for a decade. While the majority of Indians are expecting to see Modi and the BJP make a hat trick for the coming term, several reports claim that the margin of victory for Modi and the BJP government might be narrower than initially anticipated. The geopolitical tensions between China and India continue to be flat for a while now. The currency markets and FDI inflows may witness a slump if the geopolitical instability continues for the long term. If these general elections are favourable to the incumbent administration, the market will certainly take a spike in investment returns.

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Sector-specific impacts, winners and losers

1) 1989-1991: The 1989 general elections gave India a coalition government to take over the office. During this phase, the stock market got to only witness instability and market volatility with periodic shifts in the government. The end of the long-standing biggest party, Congress, and fragmented coalition government only set forth doubts and questions in the minds of the investors. The scepticism in the short-term ruling governments introduced numerous challenges in every sector, particularly banking with high NPAs and infrastructure at the bottom. However, the liberalisation policies in 1991 altered the entire economic and market landscape, thereby boosting investors' confidence to the next level. Hearing the 1991 liberalisation policy, the BSE Sensex reacted immediately with an expeditious rise from approximately 1,000 points in July 1991 to around 4,500 points by March 1992. This was a 350 per cent rise within a year. Besides, Foreign Institutional Investors (FIIs) invested over $1 billion in Indian equities and the BSE's market capitalisation increased from about $50 billion in 1991 to over $150 billion by 1994. Additionally, the number of listed companies on the BSE increased from around 2,300 in 1991 to nearly 5,000 by 1996.

2) 1996-1998: Despite the liberalisation policies and economic reforms post-1991, the economy didn't see the light at the end of the tunnel. It was another short-led government administered by Atal Bihari Vajpayee, H.D. Deve Gowda, and I.K. Gujral. The BSE Sensex drifted at around 3,500 points but plunged to 2,800 points after the outcome of the 1996 general elections. This marked instability in the economy, and nosedived the confidence of the investors in the market. In 1997, the Sensex showed signs of recovery, touching 4,100 points but again witness descended rapidly to 3,000 points in mid-1998 due to another election commotion. During the 1996-1998 phases, sectors such as IT and Pharma observed streets ahead of growth, benefitting from exports and imports and the global tech boom. However, sectors like banking, infrastructure, and real estate struggled and suffered in the wake of delayed policy implementation.

3) 1999-2004: Unarguably, this period restored the loss of hope of the investors, as the NDA won the elections, and charged from the front. Witnessing the stable government after a long wait, the markets exhibited optimism and the BSE Sensex increased from 3,900 points to 6,600 points approximately. This affirmative surge has made a killing, which accounted for a remarkable gain of more than 70 per cent. The BJP-led NDA coalition government came bearing gifts to sectors like Information Technology and Telecommuting. The market saw a rise for software services globally followed by considerable progress in the revenue and market capitalization for companies like Infosys and Wipro. Telecom company Bharti Airtel partnered with AT&T to expand its network. On the contrary, the manufacturing industries, particularly small-scale industries and some PSUs got the short end of the stick.

4) 2004-2009: The aftermath of the 2004 general elections led to the formation of UPA, under the power of the Indian National Congress (INC). Dr. Manmohan Singh was the ruling Prime Minister of India back then. He continued to push reforms and encouraged more foreign investments. This government focused on infrastructure, which was least focused beyond a decade. The financial sector also witnessed stability and revenue growth after the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act and Banking Regulation Act, 2005, were introduced to the market. This resulted in a spike in the banking and finance stocks. Woefully, the sky became dark as the 2008 crisis hit the market with a huge blow. The BSE Sensex which peaked to around 21,000 points in January 2008, plummeted to less than 9,000 points in October 2008. Before the market crash in early 2008, the market capitalization was above $1 trillion against $400 billion in 2004. The real estate took a tumble amidst the 2008 market crisis, where certain areas endured a 30% plunge in property prices, and some developers fell headlong for funding and project sanctions.

5) 2009-2014: The stock market took a sharp blow to it head after the 2008 market crisis. However, the 2009 elections presented the Indian National Congress-led United Progressive Alliance (UPA) victorious, which pushed the Sensex by 200%, i.e., from 9,000 points to 27,000 points. The expansion of urbanization propelled the growth of FMCG companies like ITC and Unilever. Pharmaceutical companies such as Sun Pharma and Dr. Reddy's enjoyed significant growth due to the demand for generic drugs worldwide. The losers were the banking and financial sector which was still grappling with the 2008 crisis, with high NPAs in hand and modifications in the regulatory policies. The real estate failed terribly and was knocked with high interest rates and substandard property prices.

6) 2014-2024: The world witnessed the unthinkable in the 2014 elections, as the BJP government stepped into power under the leadership of Shri Narendra Modi as the incumbent Prime Minister of India. He assumed office on 26th May, 2014, and since then, he has been the guiding light of the nation's destiny towards stability and overall growth in the economy. The instant market reaction to this government was marked by a considerable surge in the BSE Sensex from 24,000 points in May 2014 to more than 60,000 points by mid-2024. The NSE Nifty 50 witnessed an increase from around 7,200 points to approximately 18,000 points throughout this time. During his tenure, to date, he has incorporated many reforms that have impacted the traders and the common public, both positively and negatively. Some of the reforms the Modi Government introduced and launched include Goods and Service Tax (GST), Demonetization, Insolvency and Bankruptcy Code (IBC), and Corporate Tax Cuts. The winners dur

How key reforms by Modi government impacted the stock market and traders?

1) Goods & Service Tax (GST): The central idea behind GST is to simplify the tax system and unify and put both the direct and indirect taxes under one head. The GST came into effect from 1st July, 2017 in India. The modified tax rate changed from 15% to 18%, which led traders to splurge a little more from their pockets on every trade. This move hasn't been hard for long-term investors but short-term investors paid the extra difference. In mutual funds, the story was the same, as more the churn, more the price to pay on every churn, and vice-versa. Post-GST reform, the BSE Sensex took a sharp rise from around 30,000 points in July 2017 to approximately 36,000 points by July 2018. The winners were the logistics companies, as the interstate checkposts were lifted, resulting in cost-cutting, a spike in stock appreciation, and optimistic growth in the overall revenue. For instance, Blue Dart, one of popular logistic company, has witnessed a 37.5% spike in the stock price from INR 4,000 to INR 5,500 during the corresponding period. The FMCG sector also saw a considerable growth as they require logistics for frequent transportation of their products. For instance, Hindustan Unilever's stock spiked by 45% from INR 1,100 in July 2017 to INR 1,600 by July 2018. At the end, this was good news for the nation as the streamlined tax regime minimized tax evasions, fostering fairness and transparency in the economy.

2) Demonetisation: The aim of this reform is to limit or inhibit the flow of black money in the country. Came into effect on 8th November 2016, the demonetisation led to a credit crunch and cash flow squeeze, resulting in economic stagnation and financial downfall. Although this move paused economic activities, the digital sectors, particularly banking and financial companies attained long-term benefits. The demonetisation shifted all transactions from regular cash offerings to digital payments. The immediate response by the stock market was the Nifty 50 index plummeted by around 500 points and the BSE Sensex encountered a significant decline by over 1,600 points. Looking sectoral-wise winners and losers, the banking sector initially faced troubles due to a cash crunch in the market but subsequently became unvanquished after people started to exchange old notes. On the flip side, the Real Estate sector faced turbulence due to a lack of cash in the market, and the Automobile sector ended up dry due to reduced consumer spending, resulting in a sales downturn. Paytm, Google Pay, PhonePe and other payment aggregators were true winners during this phase.

3) BS-IV to BS-VI: The transition from BS-IV to BS-VI vehicles caused a negative impact in the automobile sector. Companies under this category faced substantial production cost for the upgrade to the latest standards. The price of the vehicles also witnessed a steep rise of around INR 20,000 to INR 50,000. Maruti Suzuki, Tata Motors, and Mahindra & Mahindra splurged exorbitant costs on redefining the entire manufacturing process.

The stock price of the aforementioned companies - before and after the BS-VI transition:

Maruti Suzuki Pre-BS-VI Transition (April 2019): INR 7,200

Maruti Suzuki Post-BS-VI Implementation (March 2020): INR 4,600

Maruti Suzuki Recovery Post-transition (April 2021): INR 7,000

Tata Motors Pre-BS-VI Transition (April 2019): INR 220

Tata Motors Post-BS-VI Implementation (March 2020): INR 65

Tata Motors Recovery Post-transition (April 2021): INR 300

Mahindra & Mahindra Pre-BS-VI Transition (April 2019): INR 650

Mahindra & Mahindra Post-BS-VI Implementation (March 2020): INR 300

Mahindra & Mahindra Recovery Post-transition (April 2021): INR 800

In the beginning, the Indian automobile sector experienced numerous hurdles, where several companies gave huge discounts to customers and conducted several promotional activities. The overall profit margins fell, crashing the automobile sector, but subsequently recovered upon adapting the mandate norms and expanding their boundaries to eco-friendly automotive.