How Election Results can affect Stock Market movements - a guest post

Recent results of elections in four states and one union territory threw up some interesting outcomes. Congress and its various alliances got a drubbing in all four states, though they managed to retain Puducherry.

BJP and its allies won Assam - opening their account in a North-Eastern state for the first time ever. They managed to marginally increase their seat share in West Bengal, and played spoilsport for the Left-Congress alliance in several more seats.

The strength of Congress in the Rajya Sabha will get reduced. In this month's guest post, Nishit explains why the results may be beneficial for the stock market and how results of state elections in 2017 can affect the market.

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Election results for four State Assemblies and one Union territory have been declared. Election results often influence the stock market because Government policies play a big role in the progress of the economy and as a consequence of which the market reacts.

In 2004, it was the fear of change, when the well entrenched NDA Government of Vajpayee was uprooted, and the market tanked. In 2009, it was relief that Manmohan Singh was back and would no longer require support from Communists. Similarly, in 2014, the Modi wave drove the market up.

Assembly polls do influence the market because they throw markers to the future. BJP consolidated its position during the recent state elections, and hence the market did not tank. If Assam was not won, then the market may have cracked.

There are no elections scheduled for the Assembly till about March 2017. At that point of time, the key states of UP, Punjab and Uttarakhand would be going to the polls. If BJP does badly, the market will tank and vice versa.

Election results are one of the influencing factors for the way the market moves and one must keep an eye on them. Market movements are merely effects and the underlying causes are many. An effective study of causes why the market moves as it does will help one make money.

The market rallied after state election results on May 19 '16 because Mamata Banerjee made the statement of supporting the GST Bill after results were out. The results also mean that in due course, Congress will be further weakened in the Rajya Sabha - enabling the NDA to pass important bills more easily.

Next year there will be two occasions when the market may get influenced by election results. In March 2017 with UP and Punjab and in late 2017 when Gujarat and Goa go to the polls. Imagine the scene should BJP lose in Gujarat!

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(Nishit Vadhavkar is a Quality Manager working at an IT MNC. Deciphering economics, equity markets and piercing the jargon to make it understandable to all is his passion. "We work hard for our money, our money should work even harder for us" is his motto.

Nishit blogs at Money Manthan. You can reach him at nish.stockid@gmail.com)

The importance of the upcoming state elections – a guest post

Almost every one had expected the Modi-led NDA to do well in the general elections held during Apr-May ‘14. But the thumping majority of NDA’s victory came as a complete surprise. Expectations from Modi’s government went sky-high. The stock market celebrated by regularly touching new highs.

Of late, there have been some murmurs of disappointment and discontent – both among domestic and overseas investors - about the lack of any major reforms announcements from the Modi government. It seems like the government is taking the path of incremental improvements of the existing system of working.

Perhaps, the failure to pass the insurance bill has necessitated this cautious approach. In this month’s guest post, Nishit gives his opinions on why the Modi government is proceeding with abundant caution instead of trying to bulldoze its way through with major policy reforms.

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The Modi Government was elected with a huge majority and it has been in power for nearly 100 days. The Government has made some progress but is treading lightly. Let us try and explore why, and what could be the road ahead in the next few months.

First of all, change is going to be gradual. The big-bang approach rarely works. India is world famous for the best of rules and regulations but compliance is very low. If compliance rate is fixed, most of the problems disappear on their own.

Second, the Government enjoys a big majority in the Lok Sabha, but in the Rajya Sabha it is badly in a minority. To pass any bill, it has to be passed in both houses to become a law. The other option is a Joint Session of Parliament where both Lok Sabha and Rajya Sabha sit together and a simple majority is needed.

Another option is asking other regional parties to support the passing of any bill, which itself becomes an issue because these parties may demand their own pound of flesh.

The best option therefore lies in having a majority in the Rajya Sabha also. The members of the Rajya Sabha are elected from the various States based on the respective party strength in the Vidhan Sabha of each state.

Now, the 4 States in which elections are going to be held soon, are Maharashtra, Haryana, Jharkhand and J&K. BJP has not been in power in these States for many years now. The elections will be held some time in October-November 2014. So, any aggressive reforms now may upset the applecart of the state elections. These elections become even more significant as they will be the first major test of Modi’s popularity after the general election.

This is the reason BJP is playing safe, and the stock market is buoyant but not too exuberant. A positive result for the BJP, at least in Maharashtra and Haryana, will send the market skyrocketing; else we may see the much awaited 10-15% correction from the top.

From now to November is the time to wait and watch, accumulate good quality stocks and enjoy the bull ride. Be prepared for stock prices to fall after you have bought them. Hence, the lineage of the stock is most important.

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(Nishit Vadhavkar is a Quality Manager working at an IT MNC. Deciphering economics, equity markets and piercing the jargon to make it understandable to all is his passion. "We work hard for our money, our money should work even harder for us" is his motto.

Nishit blogs at Money Manthan. You can reach him at nish.stockid@gmail.com)

Stock market behaviour prior to a general election – a guest post

The next general elections for Lok Sabha seats are less than a year away. Political parties have already started pre-election activities like choosing likely candidates for the PM’s post and discussing possible alternative alignments for government formation.

The period prior to a general election is usually one of uncertainty for investors. Uncertainty leads to selling, or at best, staying on the sidelines – neither being particularly conducive for a bull phase. In this month’s guest post, Nishit presents a different viewpoint

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The next General Elections are round the corner. Let us see the implications for the stock market. Most believe that the uncertainty of elections leads to markets falling. A friend of mine had done an analysis where he compared the 1 year period leading to general elections, and found out that in 5 out of 6 occasions the markets had rallied at least 20% prior to elections.

In the year the market did not rally before the elections, it rallied after the elections (in 2009). Next is the timing of the elections. There are 3 likely slots for elections: In September 2013, November-December 2013 and the original slot of April 2014.

For elections to happen in September 2013, the elections should be announced now. It takes the Election Commission about 4 months to organize an election and also the monsoons have to withdraw. The Parliament is not in session till July and the Government would like to see how the Monsoon progresses before jumping the gun and calling for early elections.

That means September is more or less ruled out. That leaves us with the November-December slot along with the State elections, or the normal elections next April. I strongly feel it will be next April because out of the States going for elections in December, Madhya Pradesh and Chhattisgarh are BJP strongholds and in Rajasthan and Delhi, the Congress is on very weak wickets. If the elections are held simultaneously it can very well happen that the Congress loses out on Lok Sabha seats also in these States.

Also, the Congress as a rule never calls for elections before its term is up. If we go by that yardstick, then also the elections should be held next April.

If we take the Nifty bottom in April ‘13 (of 5477), then a gain of minimum of 20% till the elections in April ‘14 can take us to 6572.

The situation post the election results may completely change. The stock market will depend on the stability of the next Government and we will explore that as we come closer to elections.

If we go by the above hypothesis, then every dip becomes a buying opportunity. Profits need to be booked at higher levels so that one has investible funds in hand when the market falls. The previous elections in 2009 created a big gap at 3700-4000 in Nifty. After the next general elections, Nifty may very well go and fill that gap.

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(Nishit Vadhavkar is a Quality Manager working at an IT MNC. Deciphering economics, equity markets and piercing the jargon to make it understandable to all is his passion. "We work hard for our money, our money should work even harder for us" is his motto.

Nishit blogs at Money Manthan.)