The much-awaited and the last full Budget of the current government is done and dusted. The noise on the on pros and cons of the Budget will subside in a few days or weeks. Thereafter, the focus could shift on to the next big event — the 2024 General Elections.
The Presidential Cycle theory is well known in the US. It gives the US stock market performance of the stock markets in the US during in each of the four-year tenure tenor of the President based on historical data.
We do not have any such theory for India. But, as the General Elections are practically round the corner , we studied how the Indian stock market indices had performed in the past in the year preceding the elections.
The study shows that Sensex and Nifty will have a positive year before the election. Among the sectoral indices, the Information Technology (IT) index can gain the most . Here are the details of what we found from the study. However, we would like to note that this study is based on the last two decades unlike in the US, where the theory is based on data over a century.
Broader indices
The Indian benchmark indices have always performed well in the calendar year before the General Elections. Out of the last four instances, 2002 was the best year preceding the elections. Sensex and Nifty 50 had skyrocketed 73 and 72 per cent, respectively that year.
However, when it comes to the Smallcap and Midcap indices, the calendar year before the elections have always been bad. In 2013, the S&P BSE MidCap index fell 6 per cent and the S&P BSE SmallCap index lost 11 per cent.
Similarly, the MidCap and the SmallCap indices fell 13 and 24 per cent, respectively, in 2018 ahead of the 2019 polls. The trend also shows that the fall in the SmallCap index falls more than theMidCap.
Sector INDICES
Among the sectors, the IT and Capital Goods have been consistent in being one among the top three beneficiaries in the last two instances. The BSE IT index was up 55 and 25 per cent in 2013 and 2018, respectively. The BSE Capital Goods index rose 10 and 11 per cent over the same period.
The chances are high that the trend of IT sector’s outperformance will continue this year also. The BSE IT index is up 6 per cent so far this year after tumbling about 24 per cent last year.
On the other hand, the realty sector has been the worst performer. The S&P BSE Realty index had fallen 32 and 31 per cent in calendar year 2013 and 2018, respectively. The BSE PSU index also doesn’t seem to have had a good year before the elections. The index had declined 19 and 21 per cent in 2013 and 2018, respectively.
Exception
However, 2008 was an exception as the Great Financial Crisis had shattered the global financial markets. The Indian benchmark indices were knocked down by 52 per cent each in calendar 2008.
Among the sectors, as in the other instances, the BSE Realty index (down 82 per cent) was the worst performer. This was followed by the BSE Metals and BSE Capital Goods index, down 74 and 72 per cent, respectively.