Vote to make the changes you want to see.
General elections in particular across all countries, have the industries across sectors usually in speculative mode over new policies or policy changes the new government may bring in, the policies may affect adversely or favorably the functioning of a company.
This in turn affects their prices in the stock market and keep investors vary of the market.
There are always debates about how one should go about investing during the election period.
I’ll answer the doubts through my analysis, the focus will be to answer the following questions:Should I invest before or after the elections?Should I wait until the effects of elections have subsided?Are there any particular sector which grows during this period?Are there any sectors I should stay away from?Data CollectionFor the analysis, we need historical data of indices before and after election dates, we get this from — BSE official website.
We’ll download the indices of BSE Sensex, BSE 100, BSE 200 & BSE 500 and also download various sector indices data as well.
Let’s get the election dates from Wikipedia.
We will look at the last 4 elections of the years — 2014, 2009, 2004,1999.
Let’s look at 6 data points(Return %)for the analysis — 6 Months before the election — which will be the base to which 3 months before election data will be compared to.
The other data points are 1 Month before, Election Month, 1 Month after , 3 Months after and 6 Months after.
2014 ElectionsLet’s take a look at the latest — 2014 general elections first, we see that 3 months before the market was down about 1.
5 % and after that the market was in bull market infact during the election month the BSE indices were up by 10%.
Let’s now look at the sector wise IndicesThe sector data goes hand in had with the BSE sensex data.
BSE Auto, BSE Healthcare and BSE Banks indices were up and were consistent throughout the election process.
Whereas BSE metals was the most volatile.
2009 ElectionsThe pattern in technical terms of 2009 elections are similar to 2014, however we see that after the elections the market growth (approx.
~9%) was not as substantial as before and during (approx.
30%) the election month.
Most sectors were up just before the elections and after them.
BSE Auto, BSE IT were up and consistent.
BSE Metal had the continuous high growth period(close to 60%) during the election month — this could be due to a policy change aiding the metal companies.
BSE FMCG did not have a any significant movement during the election period.
2004 Elections2004 Elections saw a very subdued market until the elections were over.
The market was vary of the election results down about 20% during the election month and only picked up after a month.
We could however see consistent growth after the elections and reaching close to approx.
~20% after 6 months.
The sectors followed the BSE Sensex closely.
All of the sectors were down close to 20% during the election month and were up after the elections, BSE Metals, BSE IT and BSE Banks growing the most.
1999 ElectionsThe markets were booming before the the elections reaching close to 40%.
However during and after the elections the markets saw a brief growth and then falling close to 20% in 6 months time.
The sectors again followed the BSE Sensex very closely.
Markets were up in expectation on the new government, BSE Metals rose close to 60% but all the sectors were down close to 40% after the elections.
Did the government not hold on the promises it made?.(Maybe!)InferenceAs we see through all the various graphs over the years, we see that usually the markets are up after the elections, let’s look at the cross comparison numbers and analyse further.
BSE Sensex cross comparison data over last 4 election years.
We see that BSE Sensex mean data that markets are usually up before the elections and have a very subdued growth during and after the election month and then picks up.
The ideal strategy will be to start building up the your portfolio ideally 3 months before the election and holding on to it 3 or 6 months post the elections.
Let’s look at sectors we could invest or stay away.
BSE Auto Index cross comparison data over last 4 election years.
Auto seems to be most consistent index among all.
The growth is not as rapid as other index so is not the fall.
Strategy will be to invest into good quality Auto stocks early and sell them about 3 to 6 months after elections.
BSE Metals Index cross comparison data over last 4 election years.
Metal index seems to be the most volatile among all, they have big ups and big downs.
Strategy will be to watch for policies favoring metal companies and then invest if not stay away from the Metal sector.
BSE Healthcare Index cross comparison data over last 4 election years.
Healthcare index like Auto seem to be very consistent with their growth.
The returns dont match the sensex or Auto returns, however, if we can invest into top healthcare stocks, it would be ideal to invest close to elections and sell them about a month or 3 months after the elections.
That’s all from me for now folks!.For folks interested in the code — can refer from my Github link.
I hope you enjoyed reading this, in case of any points I’ve missed or any feedback please share them in the comments.