On June 4, 2024, the Lok Sabha election results defied expectations. Exit polls had predicted that the National Democratic Alliance (NDA) would secure between 350 to 400 seats. Based on these projections, the equity market surged around 2% as Foreign Institutional Investors (FIIs) turned net buyers on that day. However, the actual results revealed that the NDA failed to reach even the 300-seat mark, and the Bharatiya Janata Party (BJP) did not achieve a majority. The market, which prefers a stable government capable of implementing reforms easily, reacted negatively, resulting in a nearly 6% decline. Stocks closely associated with the current government plummeted by about 18-19%, and high-beta sector stocks, such as those in the power and defense sectors that had gained over 100% in the past year, dropped by nearly 20%.
This event, being significant for the country, naturally brought volatility to the market. Historical precedents show similar market reactions to unexpected election outcomes. For example, during the 2004 Lok Sabha elections, when the United Progressive Alliance (UPA) unexpectedly won over the NDA, the Nifty slumped 12.24% on the result day before bouncing back 8.3%. Within five days, the index recovered all losses and ended up 16% higher. Similarly, in the 2009 elections, the Nifty spiked about 18% on the result day before cooling off slightly.
In my view, such market volatility is short-term and should not concern long-term investors. Long-term returns are influenced more by the country’s overall economic growth, corporate earnings, and consistent policies. Investors with a time horizon of more than four years should not fear market volatility due to such events. Instead, this is an opportunity for long-term investors to add well-researched stocks to their portfolios, focusing on solid business fundamentals.
Key Sectors to Watch Under the NDA Government
- Infrastructure
- Power & Renewable Energy
- Tourism & Hospitality
- Defense
- Railways
- Public Sector Undertaking (PSU) Banks
Note
The upcoming government will be a coalition, and we need to wait for the July budget to see if the new government will prioritize a populist budget or adhere to a growth-oriented approach.
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