Lessons equity investors should learn from the last two election results?

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Lessons equity investors should learn from the last two election results?
If you are looking to bet on the stock markets, just weeks ahead of the election results, going with consensus estimates or opinion polls, be very careful. The last couple of election results did not meet consensus estimates and the results were exactly opposite to what investors were positioned for.

What happened in May 2004?

In May 2004, on the day of the election results, the Sensex lost a staggering 12 per cent as the UPA I was set to stake a claim to form the government with the help of the left backing. What spooked the markets was worries that the Left would be detrimental to pro-economic reforms and it was a fragile coalition.

What also left markets stunned was there were hopes that the Vajpayee led NDA would return back to power after the hype created around the "India Shining" campaign. Through the month of May markets did not like the outcome and the Sensex fell as much as 26 per cent in May 2004. Those who had bought shares on the hopes of a Vajpayee led government returning to power, had to deal with staggering losses.

What happened in May 2009?

In May 2004, once again the results were contrary to expectations. Nobody had expected the UPA to returns to power with an even better seats tally.

When the election results came to the fore, and it was clear that the UPA would continue to remain in power with an even better majority, the Sensex, at the opening bell, surged 1306 points to 13,479 points and trading was halted as the first upper circuit filter limit was reached. That was history for the Indian stock markets as the circuit filter had never been breached on the upper side before.

After two hours when the market opened again, the Sensex gained another 700 points and hit the second circuit of the day and the market was closed as the day's upper circuit filter had been breached yet again.

Bulls led charge on that day simply because growth rates that the country had seen between 2004 and 2009 under the UPA were good. Also, a better majority in 2009 by UPA, meant better stability and hence growth.

Most importantly it became clear that the UPA would no longer need the support of the Left which means it could push the growth agenda, which was good news for the market. If you were on the short side on the day the results were declared, you would have lost money heavily and gained, if you were on the long side.

The last two results were contrary to broad consensus and it would be interesting to see, if for the third time election results defy market expectations.

This time opinion polls and markets are clearly positioned for a Narendra Modi led NDA Government returning to power after 10 long years. It's hazardous to make a guess on the outcome, let's wait for three more months.


Read more about: elections, sensex
Story first published: Monday, February 24, 2014, 9:07 [IST]
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