Stocks Affected General Elections

Every 5 years, the stock market experiences significant volatility during the election season. Nifty and Sensex often reach their all-time highs, leading to exponential rallies. Similar case is observed as the 2024 general elections approach, influenced by various political aspects and government agendas introduced around this time.

With Nifty 50 trading at 22,419 levels and Sensex at 73,730 levels, let us learn why stock markets are heavily impacted by general elections and which type of stocks can be affected the most.

Why Do Elections Impact the Stock Market So Heavily?
The impact of elections on stocks is significant. This results from various policy changes and political actions by parties to secure their position in the upcoming elections. A major reason behind such a heavy election influence on the stock market is that political parties try to stimulate the economy rapidly to secure their chances of getting re-election. 

This is the main reason why the impact of elections on stocks is most notable during the pre-election period. However, this impact gradually reduces in the short term and more slowly in the long term post-election.

Generally, if the same government is again elected, the stock market often experiences a major run-up, reflecting political stability. However, scenarios often differ if a new government is elected.  

Here is how the stock market has performed in recent elections under different governments.

How do the Investors Make Buying and Selling Decisions?

Big investors consider numerous factors when buying or selling a stock. It includes:

●  Political Decisions: During an election period, investors often keep themselves updated with the latest political updates and stock-affected general elections., they adjust their stockholdings accordingly.

● Financial Reports: Investors rely on financial reports to assess the future prospects of a company or stock, guiding their buying or selling decisions.

● Upcoming Events: Most investors wait for the perfect time to trade a stock in the market, often timing their actions around significant events, either domestic or global. Certain events can trigger movements in specific sectors, Leading investors to closely examine and adjust their decisions accordingly.

● Indicators: Indicators are meant to depict the present situation of a stock. Investors often monitor indicators such as the PE ratio, 50-day average, 200-day moving average, etc., to decide on buying or selling a stock. 
Factors Affecting the Market Post-Elections
Once the election period ends, the stock market reaction to elections could be either negative or positive. This generally depends on the results of the elections. Here are some factors that affect the market post-election.

● Introduction to New Policies: In case a new government is selected, new policies and rules are often seen to be implemented rigorously. These policies directly impact certain sectors of the country, ultimately affecting the stock market.

● Sectoral Focus: The newly elected government might focus on a particular sector or temporarily pause its growth. Consequently, stocks in that sector can experience either a positive or negative impact accordingly.

● People’s Perspective: People's attitudes heavily influence the stock market post-election. People who favor the government invest more in the market, and those who oppose it often reduce their positions. This ultimately impacts the stock market on a broader scale.

● Election Results: Election influence on the stock market greatly depends on its results. If the ruling party is re-elected, it typically signals political stability leading to rapid market growth.  However, if a new government is elected, the situation can be quite different.

 These factors might affect the stock directly or indirectly after an election season ends.

Stocks That Can be Affected Due to Election

Here are some stocks affected by the general elections that can be among the top choices to consider.
 

Conclusion

The election season is a critical time for investing in the stock market. However, investors also view it as the ideal time to maximise their gains. Conducting in-depth research and staying updated on political developments are essential when investing during such a period, especially when the market is at its most volatile.