India’s stock markets have been highly volatile, reflecting the intense atmosphere of the elections. Initially, there was an expectation that the NDA government would win a third term with a clear majority. However, lower-than-expected voter turnout has led to unpredictable market movements.
As the seventh phase of the general election wraps up on June 1, attention is shifting to the exit polls, which will be released on the same day, just two days before the final results. Investors are closely watching these developments, anticipating their impact on the market.
Historical data shows strong market performance during election years, but current market sentiment is mixed due to various potential electoral outcomes. Analysts stress that the election results, especially the margin of victory, will significantly influence market behavior.
A decisive win for the incumbent party could trigger a market rally, pushing indices to new highs. Conversely, a narrow victory or loss could lead to short-term volatility. Experts advise investors to stay alert and adjust their strategies based on election developments.
Expert Insights from Mr. Puneet Sharma, CEO and Fund Manager at Whitespace Alpha
What are the possible outcomes of the Lok Sabha election?
It’s hard to predict the exact results, but investors should be prepared for all scenarios. The market seems to have already priced in a victory for the incumbent party. However, the margin of victory will be important. A win with over 350 seats could mean faster policymaking, while a lower seat count might slow down the process.
How will the election results affect the markets?
Looking at past election years, the Nifty index has always shown double-digit growth (2004: 10.7%, 2009: 75.8%, 2014: 31.4%, and 2019: 12.0%). While election results can cause short-term fluctuations, the long-term outlook is positive, with the market expected to deliver 12%–15% returns due to strong economic fundamentals.
In the short term, if the ruling government wins with more than 350 seats, the index could rise to 22,800 and continue upward. If the seat count is between 300–350, expect short-term volatility with a range-bound market before growth resumes. If the government loses its majority, expect a 5%–10% market correction, which should be seen as a buying opportunity.
Retail investors should hold their large positions and continue with systematic investments (SIPs), as this is a reliable long-term strategy.
How does current election period volatility compare to previous years, and what are institutional investors doing?
Markets are typically volatile around elections, and this year is no different. The Volatility Index (VIX) has risen by 60% in the last month, reaching 18+. However, this is more stable compared to previous elections, with VIX reaching 26 in 2019 and 37+ in 2014. Foreign Institutional Investors (FIIs) are cautious and waiting, while Domestic Institutional Investors (DIIs) see this as a buying opportunity.
What trading strategies can maximize returns during volatile periods?
Predicting election results is risky. Intraday traders should use reasonable stop losses to avoid getting caught by sudden market movements. Option traders can use strategies like butterflies with additional call or put buys for protection. Long strangles or straddles can also be profitable in volatile markets, but traders need to act quickly to secure profits.
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