Big Trend with AS: Lok Sabha polls only cause short-term volatility on D-Street, long-term investors need not worry, explains Atul Suri

How does Dalal Street fare as the country prepares for the general elections 2024? In an exclusive interaction with Zee Business Managing Editor Anil Singhvi, Atul Suri, CEO and CIO of Marathon Trends-PMS, pointed out that the upcoming Lok Sabha polls 2024 are akin to 2004 when the Vajpayee government was expected to come to power, but the one-year period around the election—six months each before and after the polls—translated into a market return of 20 per cent despite an unfavourable outcome for the ruling party. The emergence of the UPA-I government at the centre shocked the bulls, as the market had anticipated the resumption of the Vajpayee government’s divestment drive in tandem with the ruling BJP’s ‘India shining’ campaign, said Suri in the special Zee Business segment,‘Big Trend with AS’.

He was referring to the Lok Sabha elections in 2004 wherein the Congress ended up returning to the Centre after eight years out of office, and fears and uncertainty around the government’s divestment drive caused the market to slump by 25-odd per cent.  

Suri also pointed out that the upcoming elections can lead to short-term volatility, but suggested investors plan their decisions from a long-term perspective. That way, investors at large will be able to make the most of the market regardless of the outcome of upcoming elections.

“The market discounts unexpected negative incidents immediately, which is why it is important to take positions six months ahead of such events,” said market veteran Suri.  

A thorough look at such events in the past shows that staying invested in the market six months before and six months after such events works in investors' favour, said Suri, adding: “Even in 2004, investors enjoyed a 20 per cent return in a year when elections didn’t go as per market expectations.” He also highlighted that the 2009 Lok Sabha elections and the Global Financial crisis of 2008 were similar incidents. 

And what is Dalal Street anticipating this time around? Will the ruling BJP return to power at the Centre?  

The market largely is expecting that the Modi government will win a third term in the 2024 general elections. Nonetheless, if it happens otherwise, he also stated why strategist Christopher (Chris) Wood sees a 25 per cent correction. The market veteran related this to the 2004 elections when election results were not on expected lines and markets opened with a lower circuit after there were calls made to discontinue the then divestment ministry. He added that in such occurences, markets tend to post an immediate reaction, and that too a sharp one, which is seen recovering at a later stage.

Historically, the market has delivered returns to the tune of 15-40 per cent in the election year over the past 25 years, said Suri. With the 2024 elections being a key event facing Dalal Street in the near term, Suri gave a lowdown on how the market has fared in the run-up to the general elections during this period:  

1999  

The market favoured the bulls after the Atal Bihari Vajpayee government won in 1999. 

2004  

Herein when there were expectations that the Vajpayee government would again come to power, the UPA-I won. The market, which lost a hefty 25 per cent in the run-up to the polls, recovered pre-election losses to reward investors with a return of 20-odd per cent in a year. 

2009  

This was the time when the UPA-II came to power and in this year, markets gained significantly i.e. by as much as 80 per cent. Nonetheless, it was on the low base of the previous year after the global financial meltdown. Here, global factors were at play besides the domestic elections that took place during the year. 

2014  

Again in 2014, when the Modi government came to power, the market gained 37.5 per cent. Just six months before the election, amid anticipation on whether Modi’s candidature will be accepted or not, the market saw a pre-election rally of 18 per cent and after that, there was another 19.5 per cent jump.

2019  

The Modi government’s second straight win in the general elections led to a gain of 15.4 per cent in the market. 

Conclusion  

Suri is of the view that the market and elections share a relationship that is relevant only for the near term, and not the long term.  

The veteran investor, who has a rich experience of 32 years in the capital markets, categorically points out that a glance at the chart of Sensex over this period shows that there is no imminent place for events like global crisis and elections. Investors should try and use such events to find sectoral and stock opportunities.