When elections are held in India, they capture everyone’s attention, including that of the financial markets. There is an intricate relationship between elections and the share markett, and it could have a significant impact on your investments.. In this article, we will discuss the impact of elections on the markets and on mutual funds in India, by focusing on elections held in the past and the effects they have had.

India experiences general elections every five years, wherein representatives are elected and sent to the parliament. The table below shows how election cycles impact the stock market performances one year before and after an election in India:

• It is clear from past trends that elections in India do have an impact on mutual funds.
• As an investor, it is important to be aware of historical trends and patterns in the markets during elections.
• The period right before the elections and right after the results are announced are known for having sparked volatility in the stock market.

1989: The beginning of the coalition era

This period has seen high market volatility which came with political turmoil. With anti-corruptions measures being taken and an unpredictability of reforms under the new regime, there had been a lack of economic stability.

1991: Congress returns with reforms

The assassination of then Prime Minister Rajiv Gandhi in 1991 brought in pessimism and high market volatility. However, P.V. Narasimha Rao brought in new reforms and economic liberalisation policies which helped in boosting market confidence, and led to economic recovery and growth.

1996-1998: Unstable coalition governments and external shocks

Frequent government changes and unstable coalitions during this period led to a lack of coherence, and brought in perpetual political disruption. This period additionally saw several external economic pressures, which led to deterioration of market confidence, bearish sentiments, and muted returns.

1999: Stability with NDA, markets rally

The NDA government brought pro-growth agendas and political stability, and focused on structural reforms and economic liberalisation policies.

2004: The unexpected win of UPA shocks markets

The United Progressive Alliance led by Congress during this period defied exit poll predictions, which resulted in a 12.24% market slump on the day of the election results. However, the day next, the markets rebounded 8.3%, and finally closed 16% higher in the next 5 days.

2009: UPA’s re-election encourages massive rally

The markets during this time were astonished by the raully’s strength, wherein Nifty surged 17.74% on the day of the election results.

2014: Modinomics boosts market optimism

The NDA led by BJP brought in market optimism again, wherein the market volatility was reduced from 17.96% to 9.1%. The markets reached record levels with a notable market rally.

2019: Modi’s second term ensures policy continuity

BJP’s re-election in 2019 came with positive market reactions, with Nifty ending on the day of elections down by 0.69%, but later rebounded a 1.6% increase the next day. 

Analysts suggest that there is short-term volatility because of delays in economic reforms, but they stay hopeful about growth over a long term. It is important to understand historical patterns as an investor to be able to make informed decisions at the time around elections.

Also read: Volatility Measurement in Mutual Funds

If you are investing in mutual funds, it is important for you to be aware of the impact of elections in India. Elections bring in volatility and uncertainty, which often leads to stark market movements. It is important for you as an investor to be aware of certain historical patterns, so that you can navigate the market in a better way during election periods.

Furthermore, the Bajaj Finserv Mutual Fund Platform offers tools such as a mutual fund calculator which you can use to compare mutual funds and make informed investment decisions. The platform offers more than 1,000 mutual funds that you can choose from.