Indices Recover Over 3%, Know How Markets Performed During Previous Coalitions At Centre

As equity markets showed signs of recovery after yesterday’s crash, let’s take a look at how the stock market has performed during previous eras of coalition governments at the Centre
Indices Recover Over 3%, Know How Markets Performed During Previous Coalitions
Indices Recover Over 3%, Know How Markets Performed During Previous Coalitions

The Indian equity markets showed strong recovery on June 5, 2024, after dipping around 6 per cent the previous day. Nifty settled the day at 22,620 after surging 3.36 per cent. Market participants feel optimistic that the Bharatiya Janata Party (BJP) will lead a stable government along with its alliance partners, as major partners gave indications that they have long-term plans to continue in the National Democratic Alliance (NDA). The volatility index (VIX) also cooled off by almost 30 per cent to settle at 12.96.

Almost all broader indices ended in green, with auto and metal stocks leading the gains. The Nifty Bank index surged 4.53 per cent, whereas Nifty Realty was up 2.53 per cent. Adani Ports and SEZ, Tata Steel, Mahindra & Mahindra, IndusInd Bank and Hindalco Industries, were the major gainers on the Nifty chart.

Coalition Government And Markets

Market experts feel that a coalition government has not always been bad for the stock market. A coalition government can have more chance of compromises when it comes to passing legislations or less room to make decisive reforms. But experts feel India has lot going on more than a decisive government that will support its growth story.

Says Rahul Singh, CIO-equities, Tata Asset Management: “The macro parameters are likely to remain largely stable and hence provide downside support to valuations. However, the key data points to watch going forward would be the tilt of government policy and the Union Budget.”

Vinit Sambre, head – equities, DSP Mutual Fund said concerns about the slowdown of reforms that had been initiated under the BJP-led government, had triggered a correction.

“Some of the reforms implemented are integral to the long-term growth and efficiency of these companies and are unlikely to be undone easily. Consequently, once the initial shock subsides and market sentiment steadies, the markets are anticipated to regain stability, with its performance aligning more closely with its underlying fundamentals,” Sambre said.

India has seen a flurry of coalition governments with many parties during the 1980s and 1990s. Though the returns dipped when the coalitions were short-lived, the market had made considerable gains when an enduring coalition was built. This period saw Charan Singh, Indira Gandhi, VP Singh, Chandra Shekhar, Inder Kumar Gujaral and HD Deve Gowda becoming India’s Prime Minister at various points. According to a Business today report, Sensex returned 117 per cent and 170 per cent during the tenure of Indira Gandhi and Rajiv Gandhi, respectively. Then coalition governments of VP Singh and Chandrashekar followed with 91 per cent and 5 per cent returns, a huge dip from earlier governments that had a decisive mandate from the people. However, it should be noted both VP Singh’s and Chandrashekar’s government fell after one year each and returns are only for one year.

PV Narasimha Rao followed Chandrashekar with a coalition government and stayed in power for five years. During this period, the Sensex surged 180 per cent much higher than single party rules helmed by both Indira Gandhi and Rajiv Gandhi. It was during this phase that the economy shifted into a policy environment guided by liberalisation, privatisation and globalisation. HD Deve Gowda and IK Gujral succeeded Rao in assuming Prime Ministership of a coalition government, and stayed in power one year each, during which Sensex surged 2 per cent and 0.6 per cent each. Next came the chance for Atal Bihari Vajpayee to lead a coalition government to rule for five years from 1998 to 2004, when Sensex rose 30 per cent.

Then came a notable performance of Sensex comparable to Narasimha Rao era when United Progressive Alliance 1 (UPA1) coalition was helmed by Prime Minister Manmohan Singh between 2004 and 2009 when Sensex surged 179.9 per cent. Under UPA-2, the last coalition government in India, Sensex registered gains of 78 per cent.

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