The exit polls released on Saturday indicated that National Democratic Alliance (NDA) would sweep the recently concluded Lok Sabha General Elections and form the government for the third consecutive time. This has resulted in the Indian benchmark indices opening with a wide gap-up on Monday and surging to new highs during the day.
While the BSE Sensex gained 2507.47 points, or 3.39%, to 76,468.78, the broader NSE Nifty50 gained 733.20 points, or 3.25%, to 23,263.90.25.
Notwithstanding the gains, the trading session was volatile on Monday. This trend will continue on Tuesday too when the actual election results are out. It will be important to see whether the exit polls figures are matching the actual numbers or not.
As the announcement of election results are only hours away, we analysed the past trends to understand how the Sensex and Nifty moved on the election result days. We have taken the last four election years, that is 2004, 2009, 2014 and 2019.
While historical performance is not a guarantee of the future, this is just a study on how the markets have performed in the past.
Exception year
Out of the four election years, the year 2009 is an exception. Firstly, the election results came on a Saturday. So, there was a one-day gap for the market to react.
The United Progressive Alliance (UPA) winning for the second consecutive time gave a boost to the markets as they opened on Monday (after the results were announced on Saturday). The benchmark indices, the Sensex and Nifty 50, surged and closed over 17 per cent higher on that day.
Marginal closing difference
Leaving out 2009, in the other three election years, there has not been much significance in terms of the closing values of the Sensex and Nifty as compared to the previous day. 2019 was the only year when Sensex and Nifty have closed in the red on the result day. The indices were down 0.76 and 0.69 per cent, respectively.
In the other two years, 2004 and 2014, the indices rose on an average of 0.75 to 0.85 per cent on the result day.
Intraday volatility
Although there is not much significance in terms of the market closing, the result day have always seen a high intraday volatility. That is, the swing between the day’s low and high have been very wild on the results day. On an average, the high-low spread in Sensex have been an average of 1,000 points on the result day. For Nifty, the spread has been on an average of 450 points. Compared to the closing figure on the day before the results, the high on result day in the indices was 4.4 per cent and the low was about 2 per cent.
In the last two election years, that is in 2014 and 2019, the benchmark indices have opened with a gap-up. Nifty had opened with an average gap-up of 1.7 per cent (150 points). Sensex had opened with an average 1.4 per cent gap-up (425 points).
Possible range
Sensex and Nifty closed at 76,468.78 and 23,263.90, respectively on Monday ahead of the election results. If the exit polls and real results are in tandem, then considering the above average numbers, Nifty and Sensex can open around 23,650 and 77,500, respectively. The day’s range can be 74,900 to 79,800 for the Sensex and 22,800 to 24,300 for Nifty. The benchmark indices can close around 76,600 and 23,300.
Be cautious
If there is a significant a variation between the exit polls and the actual numbers, then there is a danger of the market running into a big sell-off. In that case, the assumptions and the range calculated on the indices levels above will go completely wrong. So, more caution is needed.