Lok Sabha Results: How Should Investors Trade Stock Market On June 4? Experts Suggest This Approach

Loksabha Election Results: If the government does not win a clear majority and a coalition government is formed, the market may fall between 5 per cent and 25 per cent, the report said.
lok sabha results, 
trade stock market, Elections
lok sabha results, Investors, trade stock market, Elections

Loksabha Election Results: Voting for the Lok Sabha elections 2024 is over and all stakeholders are waiting for the results on June 4th with bated breath. Even though most Exit Polls have predicted return of Modi government with a thumping majority, investors in the stock markets are still wondering how the uncertainty of the counting day will impact the indexes. The Indian stock market often acts as a barometer of economic stability during general elections. Investors keep a close watch on election events. If we look at the record of the last two to three decades, volatility in the stock market increases before general elections. However, every time after the election, there is a strong jump in Nifty and Sensex. According to the report of ICICI Direct, "Except for the 2004 elections, Sensex and Nifty 50 always gave positive returns after the general elections of 2009, 2014 and 2019. In the year 2014 and the year 2019, both the indices rose by 13 per cent and 8 per cent respectively after the election results were announced. Sectors like banking, consumer durables and IT always become top performers after elections."

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However, past performance does not guarantee future results. According to a recent report by Morgan Stanley, if the current government wins the elections with a clear majority in 2024, the market may rise between 0 per cent and 5 per cent in the three months after the elections. If the government does not win a clear majority and a coalition government is formed, the market may fall between 5 per cent and 25 per cent. On the other hand, if the BJP government loses the elections and the largest party comes to power with the help of a coalition, the stock market may fall by a massive 40 per cent.

Lessons from history

The question therefore arises of how investors should approach the stock market on the result day and how it should trade during its immediate aftermath. Talking to Outlook Money, Narendra Solanki, Head Fundamental Research - Investment Services, Anand Rathi Shares and Stock Brokers pointed to a positive approach and said that the historical data related to general election results for the past about 10 elections suggests that market reactions generally remain flat to positive on results day barring elections where there were big surprises. “Also, one-month returns post-results have also remained positive mostly in 8 out of 10 instances,” he added.

Aamar Deo Singh, Sr. Vice President, Research, Angel One Ltd. said, "Ahead of the election results, markets have cooled down from their recent highs around 23,100, as traders seem to prefer keeping positions light before this key event. The FIIs have also started the June series with a Long-Short Ratio of 13 per cent, indicating they are not going to the event with higher expectations.”

“Historically, when the Long-Short Ratio is at the lower end, the Nifty has found nearby support. Technically, prices have been trading in a rising channel pattern for over three months, oscillating precisely within this range. The current trading range according to the pattern is between 22,200 and 23,200. In a bearish scenario, a breakdown of this pattern below 22,200 could trigger a price correction phase, which would be healthy from a broader uptrend perspective. On the other hand, the 23,200 – 23,500 range remains a key hurdle," Aamar Deo Singh explained his outlook for Nifty.

Anand K Rathi, co-founder of Mira Money asked investors to look at the historical data and said, “Let's consider the historical market trends on election result days. In 2019, the Sensex fell 0.76 per cent on the results day, but it surged 1.61 per cent the very next day. Similarly, on the counting day of May 16, 2014, the BSE Sensex surpassed the psychological level of 25,000 for the first time, hitting a lifetime high of 25,375.63. These instances can guide our suggestions to retail investors trading on the election result day i.e. 4th of June 2024.”

“If I am a trader interested in wanting to trade on election-day, there are certain things I will keep in mind. First, I will not leverage my portfolio much and will keep it bare minimum. Secondly, I will ensure that I do not worry about the day-to-day moment on that day, accepting that I may get a couple of trades wrong. Historically, we have seen in the past, i.e., from 1999, on the day of the election, and a week after, the markets generally provided positive returns ranging from 2% to 17 per cent,” Rathi added.

Devang Shah, Head of Retail Research, Asit C. Mehta Investment Interrmediates Ltd. said that we have seen in the past on the day of election results, markets generally remain very volatile, and the way we have seen the surge in VIX, that's indicating that the market is going to remain volatile till we get the final election results outcome on 4th June. “As far as retail investors trading on election days are concerned, historically we have seen the prevailing trend continue till the final election result outcome day. So far the market is given a breakout on an upside. So, it looks like the bullish momentum is still intact till it’s proven otherwise. But we generally feel that election results will come out and go.”

Word of wisdom for investors

Mira Money’s co-founder Anand K Rathi said that his personal view would be not to leverage my portfolio too much. “I will increase my timeframe from being a day trader or 3–4-day trader to about a week to increase my probability of winning,” he said. “Additionally, people who are stuck should trade in good, high-quality liquid stocks with very high-quality indices. India is very inexpensive when it comes to large caps. By trading in Nifty or Bank Nifty, the chances of risks on that day may be high, but holding for a week or longer will still ensure positive returns.” Rathi concluded: Increase the time frame and reduce the leverage.

Narendra Solanki, Head Fundamental Research - Investment Services, Anand Rathi Shares and Stock Brokers said that currently the overall structure of the market is positive while heading into the results day and it also seems that markets have priced in a repeat of incumbent govt. with the decent majority. “Any risk to this outcome could prove to be volatile in the short term else do not see risk to any major downside. For long-term investors, I think they should continue to remain invested in the markets and as another event, this would also pass and thereafter govt. policies, growth, fundamentals and valuations would drive the markets. In case of any volatility they should be ready with a list of stocks to add to the long-term portfolio as the Indian economy would continue to grow and expand,” Solanki suggested.

Devang Shah, Head of Retail Research, Asit C. Mehta Investment Interrmediates Ltd. asked investors to focus on quality stocks to be invested in to generate long-term returns on the portfolio. “As far as near-term trading is concerned, we generally feel that too much aggressive leverage on a derivatives front is to be avoided. Strategy-wise, one should keep a long-term horizon for investment and specifically focus on sectors which are going to benefit with government policies and reforms in the medium to long term.”
Almost all the experts Outlook Money spoke to said that investors should approach the stock market with a long-term perspective. It is most important to focus on fundamentals to minimize election-related volatility. General elections can significantly impact the stock market, but potential losses can be avoided with a solid investment strategy.

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