Elections bring bulls back in action

Sensex Up 10% In 10 Days, Hope Of Pro-Reform Govt Enthuses Mkt In Run-Up To Polls

Chennai: Have you noticed the sensex has gained close to 10% since March 9, closing 112 points up at 8,977 on Wednesday? Going by data for the last eight elections from 1980 onwards, stock markets tend to dance in the run-up to the Lok Sabha elections with the sensex showing an average 4% gain in the three months preceding elections. Expectations of a reform-minded government seem to enthuse investors as much as gains in sectors that benefit from pollrelated expenditure.
    Barring the May 2004 elections, sensex has, in fact, gained more than 5% in the three months preceding the elections the last five times since 1980. The benchmark index was up 13.5% before the October 1999 polls, 5.1% before the March 1998 polls, 5.9% in 1996 and 8.1% in 1991, clearly showing how the anticipation of change spilled over on to Dalal Street. In 2004 (after five years of the NDA government) and 1980 (following the Janata Party's short-lived rule), sensex recorded less than 1% returns in the three-month period before the polls, but it still made gains. The only time it went into negative territory was in 1989 when the sensex was down 2% in the three months before the Congress government was overthrown due to the Bofors controversy.
    From the investors' point of view, sectors such as media, FMCG and auto look favourites in the run-up to the elections as polls are known to boost consumption. "Readership of
newspapers goes up during
elections and so does news channels' viewership. Sales of
alcoholic beverages shoot up
during elections; and with increase in money supply, more pronounced in rural areas, personal care products are also likely to benefit. Auto sales usually go up (marginal increase) as SUVs are used for election campaigns, personal transportation and security of politicians,'' Abhishek Singhal of Edelweiss Research said.
    The five-phase elections for the 15th Lok Sabha begin from April 16. Elections will be held from April 16 to May 13, with the results on May 16. As data shows, only on three occasions (in 1989, 1996 and 1999) has the market delivered negative returns even in the one month before elections kick off. In all other years, the average gain has been 4.6% in the one month before polls. Even this year, since March 16 - exactly one month to the elections - the index has already risen by 2.5%.
    But will the market sustain the momentum post-election? Analysis since 1980 shows that a month after the polls, the bellwether index posts an average rise of 3.5%. On six out of the eight times since 1980, investors have made gains.
    And returns appear even better when you map the sensex three months after elections - an average rise of 7.8%. Post-elections, markets have usually been positive as expectations on policy initiatives builds up following clarity on the political front. "This time too, a reform-minded stable government could mean that the market may start looking at a strong earnings recovery in FY11 and a 25-30% rally from current levels,'' Nilesh Jasani of Credit Suisse said.