Monday, March 02, 2009

Elections and stock market

Here is a snippet from TOI in 2004 about the stock market in relation to the elections that are going to be held now in 2009. Well I don't agree that market should peak now, without any business environment logic.


... expect to mark up your stock portfolio soon after the new government takes charge next month, since in all probability, there
will be a buying spree after the uncertainty surrounding the poll process ends.

That has been the market's trend after each of the last three Lok Sabha elections — in 1996, 1998 and 1999.

Data on BSE Sensex and the NSE Nifty show that within four to six weeks of the final results in those three general elections, the indices touched a new temporary peak and gained 8-13.5 per cent.

In fact, the gains were as high as 25 per cent if one considers the rise in the indices from the first day of the poll till the short-term peak is reached.

In 1999, when the BJP-led coalition won the elections, the Sensex witnessed a 380 point (8 per cent) rally to breach the 5,000 level.

"In 1999, there was a clear mandate (for the BJP and its allies) and hence the euphoric rally that we saw just after the elections that year," said Ambareesh Baliga, V-P, Karvy Stockbroking.

In 1999, within days of the polls, the Nifty rallied 8 per cent from 1,393 to reach a peak of 1,505 and the Sensex also moved up the same percentage.

Even in 1996 and 1998, when no party got a clear mandate and the governments
were multi-party coalitions, the market rallied as investors were relieved of poll-related uncertainties.

"Those (1996 and 1998) were end-of-the-uncertainty kind of situation," said Arun Kejriwal of Kejriwal Research and Investment Services.

In 1998, after the election outcome, the Sensex spurted 13.5 per cent to 4,281 while the Nifty clocked a 10.5 per cent gain to 1,231. Likewise, the two benchmark indices gained 10.2 per cent and 9.7 per cent, respectively, after the 1996 polls.

Market players however said it is mostly retail investors who enter the market during these post-poll rallies, while 'smart money' exits.

"Smart operators return only when there are signs of consolidation in the market... after the new government is formed and expectations for the budget start building up," said a domestic fund manager.
(TOI - 2004)

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