Written By Darshan M (Grade 12)
The Indian stock market plays a crucial role in measuring the overall economic well-being, showcasing investors’ behaviour, economic performance, and prospects. Elections stand out as key events that can heavily influence market dynamics due to their ability to shape economic policies and overall stability. The Indian stock market saw notable fluctuations during the exit polls and the final result of the 2024 election outcomes. The market’s response to the exit polls and subsequent election results had significant fluctuations, where the market saw both positive and negative trends.
Elections play a crucial role in shaping the democratic landscape of a nation, as they decide who will lead the government and what path the country will take. This is why investors pay close attention to election outcomes, as they can have a major influence on economic policies, regulations, and the overall mood of the market. A stable political environment is often linked to economic certainty and positive investor sentiment, whereas any hint of instability or potential policy shifts can lead to fluctuations in the market.
Exit polls are taken into account right after individuals cast their votes, providing insights into the probable results of an election. Though not consistently reliable, they serve as a brief glimpse into voter attitudes and have the potential to impact financial markets. Traders utilize exit polls to predict the potential outcome of elections, modifying their investments according to their idea of the political environment’s stability and policy-making strategy.
Throughout history, the Indian stock market has experienced fluctuations during exit polls and election results. This was evident during the 2014 and 2019 general elections, where the market showed significant volatility. In 2014, exit polls indicated a clear win for the Bharatiya Janata Party (BJP) under the leadership of Narendra Modi, which was perceived as favourable for economic reforms and market liberalisation. As a result, the stock market reacted positively, witnessing notable gains after the release of exit poll data.
In the same trend, the exit polls of 2019 pointed towards a probable 2nd term for the BJP administration. This prediction received a positive reaction from the stock market, which saw a significant rise as investors looked forward to consistent policies and a stable economy. These instances underscore the market’s sensitivity to exit poll information, fuelled by expectations of beneficial political results.
The exit polls conducted in May 2014 indicated that the BJP would secure a dominant win in the elections. As anticipated, the market saw a boost in response to these predictions, and on May 16, 2014, when the election results officially announced the BJP’s victory, the Sensex witnessed a notable surge of over 1,000 points, reflecting the confidence of investors in the anticipated economic reforms and political stability. Similarly, in May 2019, exit polls once again pointed towards a comfortable victory for the BJP. This result was reflected in the stock market, with both the Sensex and Nifty indices showing substantial increases. When the official results on May 23, 2019, confirmed the BJP’s win, the market experienced yet another significant rally, driven by expectations of better policies and continued economic growth.
Before the release of the 2024 exit polls, the Indian stock market was already on an upward trajectory due to the widespread expectation of a clear win for the ruling Bharatiya Janata Party (BJP) under the leadership of Prime Minister Narendra Modi. The market had been uplifted by the strong economic indicators revealed in the weeks leading up to the elections, indicating a huge growth rate of 8.2% for the fiscal year. This growth was primarily increased by government investments in infrastructure projects and a flourishing real estate sector.
The release of the exit polls on June 3, 2024, indicated a significant win for the BJP, with numerous agencies predicting the party would secure between 300-350 seats. This forecast caused a substantial surge in the stock market, with the Sensex rising by over 2,000 points and the Nifty experiencing its most significant increase in four years. The market capitalization of BSE-listed companies also saw a notable boost, jumping by a substantial Rs 11.59 lakh crore to Rs 423.71 lakh crore, compared to the previous session’s valuation of Rs 412.12 lakh crore.
The market initially experienced a surge of optimism after the release of the exit polls, but this was short-lived once the actual election results started coming in. The early trends on the day of the vote count suggested that the NDA, led by the BJP, was likely to secure another term in power, but with a reduced majority compared to previous elections. This news caused a significant drop in the market, with the Sensex plummeting by 4470.38 points to reach 71,998.40. Additionally, the India Volatility Index (VIX) saw a sharp increase of 30%, indicating a spike in market uncertainty.
The official results of the election, which were made public on June 8, 2024, aligned closely with the earlier exit polls, showing a clear win for the BJP. This outcome was well-received by the financial markets, leading to significant gains for both the Sensex and Nifty indices, reaching historic levels. The overall market value of companies listed on the BSE also saw a notable increase, reaching a total valuation of Rs 423.71 lakh crore.
The fluctuation in the Indian stock market during the exit polls and election results can be explained by various reasons. Initially, the market’s response to the exit polls was influenced by the expectation of a clear win for the BJP, which was viewed as a favourable outcome for the economy and stock market. However, the market saw a decrease after the actual election results were announced, as it became apparent that the BJP’s victory was not as strong as anticipated. This raised worries about the potential effects on economic policies and overall stability. The market’s fluctuation was also impacted by the inconsistent track record of exit polls in India. Although exit polls have proven to be reliable in some instances, they have also been unreliable in others. This unpredictability caused increased market volatility as investors did not make significant decisions until the official election results came out.
Furthermore, the market’s response to the election outcomes was also because of a wider economic landscape. India’s economy has been thriving, thanks to considerable investments in infrastructure and a flourishing real estate sector. This economic growth has been viewed as favourable by investors, resulting in the stock market’s sustained surge post-election.
The Indian stock market went through a period of notable instability surrounding the exit polls and the outcome of the 2024 election. The market initially responded positively to the exit polls, which suggested a strong win for the BJP, but took a downturn following the election results as worries about the future of economic policies and stability arose. The unpredictable nature of exit polls and the overall economic situation played a role in the market’s fluctuating performance.
Featured Image Courtesy – Mint
