An analysis of stock market performance since 1983 shows that the Sensex has delivered negative returns only three times out of 10 pre-election years.
Losses in 1995 (-21%) and 1998 (-16%) came amid an unstable political scenario in India while the other one was during the global financial crisis of 2008 when the index crashed 52%.
While 2018 saw a decent but lower-than-FD return of 6%, the best pre-election year for Sensex was in 2003 which ended with a 73% rally. Investors were rewarded with double-digit returns in 1988, 1990 and 1997 as well.
Since the calendar year 2023 is also a pre-election year, analysts are expecting bulls to rule Dalal Street this time as well.
Towards the end of 2023 and early 2024, the market will start focusing on possible outcomes of the general elections scheduled in mid-2024. “A risk of a fractured mandate could dampen the growth outlook. These factors can impact consumer and corporate sentiment, in turn inhibiting growth in our view. The markets are not factoring in such a risk,” Nomura’s Saion Mukherjee said.
In what is seen as the ‘semi-final’ before the general election, the market would also be keeping a keen eye on assembly poll in key states of Karnataka, Madhya Pradesh, Rajasthan, Chhattisgarh and Telangana. Besides that, the four north-eastern states of Nagaland, Meghalaya, Tripura and Meghalaya would also go to polls this year. According to reports, the government may also conduct the assembly elections in Jammu and Kashmir this year.
The government is also expected to ensure enough spending to revive the rural economy ahead of the elections. According to Nomura analysts, election related spending can support demand in sectors like FMCG and two-wheelers.
“As this is the penultimate year before general elections in India in 2024, we expect the Budget to be favourable for both the market as well as the industry. We don’t think there would be any extra tax burden on investors,” said Kranthi Bathini, equity market strategist at WealthMills Securities.
The market is also speculating some big announcements related to disinvestment to bridge the deficit. “There is also a tendency to take populist measures ahead of the election. If such measures create pressure on our current account deficit, then foreign investors and rating agencies will take note of it,” the market expert said.
Infrastructure is expected to be the focal point for government spending. “We expect companies with better working capital cycle management and strong execution capabilities to be the larger beneficiaries of the revival in capex cycle,” said broking firm Stoxbox.
Analysts expect policy reforms such as Aatmanirbhar Bharat and the PLI scheme to receive further impetus in the upcoming Budget. “The consequent higher government spending on infrastructure development will help the economy gain further growth momentum moving ahead. The efforts are expected to continue around defence, railways, and road infra development. Moreover, infrastructure spending and the focus on rural recovery would remain key agendas in the budget with further growth thrust expected in the Affordable Housing segment,” Axis Securities said.
Mutual Fund’s senior economist Namrata Mittal said fiscal policy may not be able to consolidate materially in a pre-election year and consequently, infrastructure support from fiscal policy may likely continue.
Given the macro uncertainty, she expects 2023 to be a year of volatility for equities, at least in the first half. “Pockets such as mass consumption that benefit from cooling inflation and where
demand is domestically driven and may be better off in this environment. From an asset allocation point of view, diversification beyond equities into bonds and gold may help in 2023,” Mittal said.
(With data inputs from Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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