Elections, Politics & Stock Markets

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Elections, Politics & Markets
Is there any relationship / trend?
If there is any, can we learn something from history?

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Why this question?
It is generally believed, and mostly seen, that during the election times, markets
become volatile. On the day of election results in particular, lot of ‘action’ is seen in
the Equity Markets. So, we thought of studying the past elections and behaviour of the
market during those periods of elections and try to understand whether there is any
relationship between two and to what extent and whether they help us to determine
a trend or direction of the market for the election that is just behind us and in future.
Method of Study / Approach:
Identify the past election dates and take some reference points (dates) before and
after election and note the market index - SENSEX - levels. Then determine the
incremental increase or decrease in the index levels.
We have chosen Sensex only (not Nifty) because it has longer history.
Scope of the Study:
We wished to cover maximum possible period in our study but due to the limitations
elections from 1991 to 2014 only are covered. Only SENSEX is observed. Any other
reason / cause other than elections , except ‘noting’ the stock market scams, which
should have had impact on the market are considered.

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Limitations:
Unavailability of well documented and reliable information about SENSEX for the period
before 1991.
Special Periods:
There are few special periods as below, when there were events, which have impacted /
influenced the market more than elections.
• 1990 to 1992 (2 Years period): Operation and exposition Harshd Mehta Scam
• 1999 to 2001 (2 year period): Operation and exposition of Ketan Parekh Scam
• Mid 2008 to Mid 2009 (1 Year period): Global Recession / Economy Crash

TM

TM
#
This period (1990-1992) has to be seen with special care because of the Harshad Mehta Scam
^ This period (1999-2001) has tobe seen with special care because of the Ketan Parekh Scam
* This period (2008-2009) has to be seen with special care because of global recession, when there was abnormal and unusual volatility in the markets

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The above tables can be found in single wide spread sheet;
use it for better visualization http://goo.gl/8Ka8gh
Observations:
As elections from 1991 only are covered, due to unavailability of reliable Sensex data before that, only last 7
elections are covered. Even in those samples 3 election periods were affected by bigger events (scams &
recession) than election and hence they can not make the good case for studying them from election point of
view. And then, from Apr-1996 to Oct-1999 (less than 3.5 Years) there were 3 elections! That is something
highly unusual. This was because, political parties were not yet mentally prepared for coalition set-up; it took
3 elections for them to realize that it was inevitable.
However, here is the table that shows how much absolute return one would have earned by buying Sensex
(practically, say Sensex ETF) at different point of time just before and after the election and then exited one
or two years after the election.
Election
Year
Entries Exits Absolute Returns %
Entry-1 Entry-2 Entry-3 Entry-4 Entry-5 Exit-1 Exit-2 Entry-1 Entry-2 Entry-3 Entry-4 Entry-5 Entry-1 Entry-2 Entry-3 Entry-4 Entry-5
2
Months
Before
1 Month
Before
On
Election
Results
1 Month
After
3
Months
After
1 Year
After
2 Years
After
Exit-1 Exit-1 Exit-1 Exit-1 Exit-1 Exit-2 Exit-2 Exit-2 Exit-2 Exit-2
1991 1228 1168 1337 1419 1833 3081 2219 151% 164% 130% 117% 68% 81% 90% 66% 56% 21%
1996 3492 3310 3796 4067 3712 4025 3153 15% 22% 6% -1% 8% -10% -5% -17% -22% -15%
1998 3616 3380 3798 4118 3311 3743 5302 4% 11% -1% -9% 13% 47% 57% 40% 29% 60%
1999 4679 4558 5031 4639 5926 3836 2943 -18% -16% -24% -17% -35% -37% -35% -42% -37% -50%
2004 5823 5740 4505 4839 5102 6466 12217 11% 13% 44% 34% 27% 110% 113% 171% 152% 139%
2009 8607 9902 14284 14265 15035 16876 18086 96% 70% 18% 18% 12% 110% 83% 27% 27% 20%
2014 20852 22055 24121

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1947 to 1977: Policitical environment was simply dominated by Indian National Congress party. It
was just practically the ‘ONLY’ national party till then.
1947 to 1956: Perhaps Securities Market in general was not at all a serious or important matter in
this period and nothing has been done for that.
1956 / 57: First time ever something for Securities Market was done by enactment of Securities
Contracts (Regulation) Act 1956. Though Bombay Stock Exchange (Estd. 1875) was in existence for
more than 70 Years before this, it was only under this act got official recognition by the Govt.
Thereafter for very long period, until 1992 nothing was done at regulatory level.
1977 to 1979: In 1977, first national level rival to Indian Nation Congress was formed as ‘Janata
Party’, which was amalgamation of several smaller parties. IT was the first non-congress party
coming in power, though this was short lived (2 years) and later Janata Party disintegrated.
1980 to 1985: BJP at national level and some other strong regional parties in few states (BSP in Uttar
Pradesh, TDS in Andhra Pradesh) which have reduced the dominance of Congress Party
1986: SENSEX came in to existence
1986 to 1992: Loosely regulated (practically unregulated) Securities Market; this period ended with
the establishment of SEBI in 1992
Timeline (for “Elections, Politics & Markets”)
So, with the kind of past data we have, we will not be able to infer anything. Hence we tried to look at some
‘subjective’ information relevant to the markets so that we can try to use it in conjunction with election data.

TM
1990: Mr. TN Sheshan, who was Cabinet Secretary to Govt. of India lead by then Prime Minster Mr.
Chandra Shekar, was appointed as the Chief Election Commissioner of India. Wondering how this is
relevant? He was the first CEC of India who showed the real power of Election Commission and
started the golden era of fair elections. It is interesting to note that ever since then, Indian National
Congress’s ‘monopolistic’, sweeping election victory phenomena ended and sadly, perhaps as a
‘side effect’, Coalition Politics era has started.
1991 to 1996: First long lived Govt lead (or controlled) by non-Nehru family leader – Mr. PV
Narasimha Rao. This was the Golden Era of Indian Economy and perhaps economy has first time
experienced the ‘Good Times’ (“Ache Din”). Economy was opened up and India received the sea of
opportunities which changed the lives of companies and people alike. Be reminded even SEBI Act
(1992) came during this regime.
1992: SEBI Established
1999: Electronic Voting Machines (EVM) were deployed first time ever in Indian Elections and it
continued thereafter. This is another milestone in the direction of fair elections.
1993 – to present: Securities Markets matured very fast and lot of changes, improvements and
regulations under SEBI; result is more transparent and organized and overall much better market
than prior to 1992
Timeline Continued…

TM
Remarks & Conclusion:
• Regulatory framework and securities market are still very young, yet have
gathered enough experience by now.
• In fact, very clearly, we don’t have the time periods or parallels or similar
circumstances in the past we can compare with. The data and statistics being
created and documented now will be of good use in future to refer back.
• The period for which we have ‘somewhat’ useful data belongs to the period of
unstable, dependent Govt’.
• Country has seen growth and prosperity whenever the control of the Govt was in
the hands of leadership having inclination towards development and
liberalization rather than in the periods leadership of populist and traditional
thought process.
• Never before this in the Indian history so far, a development and business friendly
leadership has ever had so much power of independence awarded by people of
India.
• Journey of stock markets has just started and very long way to go! For sure this
journey, like any other, will be full of up’s and down’s. Some time in future we
should be able to predict (estimate) the election and political influence on
markets, in a better way than we can do now.

TM
It is said history repeats itself.
But we don’t have enough history now which we
may look forward to repeat!
History is being created now!!
And fortunately as somewhat ‘sensed’ in this study
and other indicators, it is going to be good part of
the history.
Want to be part of it?!
Can you afford to stay out of it and study about it later?

Elections, Politics & Stock Markets

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