The Impact of Exit Polls on the Stock Market: What Should Investors Do

India is the biggest democracy in the world, with the most complex political structure. Hundreds of registered political parties aim to win as many seats as possible to either win the majority or form a coalition government with other political parties. However, when elections are around the corner, there is anxiousness and uncertainty in the market, which highly impacts investor sentiments and creates volatility in the stock market. The impact starts from the day of exit polls, which are like Grey Market Premium for IPOs, indicating the approximate results of the elections based on various live surveys. If you are a stock market investor, it is important to understand the impact of exit polls on the stock market.

This blog will help you understand the impact of exit polls on the stock market so that you can manage your investments effectively.

• Exit polls are surveys conducted after voting to predict election outcomes based on voter responses.
• Exit polls can impact the stock market as investors can interpret the results and make investments accordingly.
• Exit polls generally create short-term fluctuations in the stock market.

Exit polls are surveys conducted by various organisations immediately after Indian voters have cast their votes in an ongoing election. The main purpose of the exit poll is to predict the election outcome by asking the voters about the political party or leader they voted for. However, the Election Commission of India restricts the release of exit poll results until after the voting process in all phases is completed to ensure fairness without any external influence. The exit poll results are known to impact the stock market condition highly as investors adjust their investments based on the results to make profits or cut losses.

The Indian investors find it difficult to transition from a current to a new government as major changes in policymaking and reforms occur. This is because a new government either stops or majorly changes the policies introduced by the old government as per their set goals. If the exit polls show that the current government may fail to get a majority, the investor sentiment may turn negative, and they may start selling their investments to cut their losses. On the other hand, if the exit polls show that the current government may win a majority of the seats and form the government again, the stock market may see a bullish trend as more investors look to invest fresh capital.

However, it is important to note that exit polls are simple predictions that deviate from the actual results by a substantial margin. For example, the 2024 exit polls predicted that the BJP led the NDA alliance to win over 350 seats when it won only 240 seats in the final results.

Looking at the historical impact of the exit polls on the stock market, it can be seen that the impact is only short-term and should not worry value investors who invest for the long term. At such a time, it is important to pick stocks that are fundamentally strong, as even if they see some pierce fluctuation based on technical factors, they have the potential to stabilise in the long term. Although it is highly risky to try to make profits based on the exit poll volatility, you can pick stocks for the short term based on the exit poll results if you have a high-risk tolerance

A wise investor always refrains from timing the market as it is highly risky and may lead to losses. On the contrary, a wise investor picks fundamentally strong stocks with high growth potential irrespective of the current event, such as elections and exit polls. It is that their stocks may see short-term corrections based on unfavourable exit poll results, but fundamentally strong stocks tend to stabilise and increase in price when the market trend stabilises. Hence, a wise investor commits to a sound investment and waits for the short-term fluctuations to be over.

Exit polls occur during every election, aiming to predict the election results. However, investors may interpret the exit poll results as negative or positive and adjust their investments accordingly, leading to a bearish or bullish market trend. As an investor, it is important to understand that the impact of exit polls on the stock market is temporary, and you should commit to quality stocks rather than trying to time the market.