business

Trader's Guide to India Elections Says It's Time to Buy Equities

  • Two years straddling national votes tend to be good for stocks
  • Modi faces a ballot due by 2019, with majority at stake

A man looks up at an electronic ticker board in Mumbai, India.

Photographer: Dhiraj Singh/Bloomberg

Indian stocks have been roughed up along with most markets in recent months, but there could soon be reason to cheer. National elections are due by 2019, and modern history shows that tends to be a good thing for investors.

While Prime Minister Narendra Modi faces an uphill battle to sustain his party’s majority in the key lower house of parliament, the past six elections show positive returns for Indian equities over the two years that straddle the vote -- regardless of whether power changed hands.

Election Rally

India's Sensex climbed in years that straddled past six general elections

Source: Election Commission of India, Bloomberg

** Fiscal year starts April 1, ends March 31

The fiscal years prior to elections showed positive gains for the benchmark S&P BSE Sensex index in all but two of the past six ballots, and one of the loser years was 2008 -- when markets round the world were upended by the global financial crisis.

Governments of course have plenty of incentive to boost growth in the run-up to elections, potentially feeding through to corporate earnings as well. Optimism about a new administration’s game plan could also help explain the history.

Investors might hope for a repeat of the 2004 election when it comes to the impact on equities. The Sensex saw a 113 percent advance over the two years through March 2005.

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