Contrary to general perception that stock markets “detest” elections, they tend to move up or remain flat in run-up to the polls and similar trends could be seen in India, a research report has said.

Noting that the political class in India is entering into election mode, global investment bank Morgan Stanley said: “The market does not detest elections. Indeed, it tends to trade flat or up ahead of elections“.

While general elections for the next Government at the Centre are unlikely before the year-end, the report said, “the caveat is that politics is the art of the possible”.

While the elections are supposed to be held some time in the middle of 2014, many political leaders in the recent past have suggested that polls could be held earlier.

Of late, the BSE 30-stock index, Sensex, has been very volatile amid political uncertainty. As on April 6, the index lost 2.05 per cent over the previous week and 4.17 per cent over last month amid political and economic worries.

Morgan Stanley said that going forward, industrials could be the big beneficiary, so watch for performance of mid-caps in that sector.

The worst outcome of the new round of political uncertainty could be an unfavourable shift towards social spending, it added.

“There is no evidence of fiscal slippage, but the market’s scepticism can be addressed only by the passage of time,” the report said, adding that project spending could get a lift in the next six months.

The government should lift the pace of reforms to reignite growth because that will be critical to winning elections.

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