Do Elections Affect Stock Market Returns?

By Amit Rupani

India is heading for Lok Sabha election in April 2019 – the world's largest democratic election exercise. Indian General Election 2019 schedule is out and the national election will be held in seven rounds from April 11 and the results will be announced on May 23.

Will the Indian stock market crash if Narendra Modi led NDA government doesn't come back to power? There is a lot of noise and confusion among investors in Indian stock market about how the election outcome will impact their portfolios. A lot of investors are just too scared of the election outcome and waiting on the sidelines.

I recently came across a very interesting table which showed performance of the BSE Sensex index over last 39 years during 13 different government tenures. Below is the table which provides the details.

Just notice the Market Returns (%) column on the right side. Surprisingly, it does not have a single negative return number. If an investor had remained invested during the entire tenure of the government in power, the investor has never lost money. The markets have performed better when the ruling government has stayed in power for full-term, regardless of which party was at the helm. Above table proves that a majority or a minority government may impact the political fortunes of the leaders or impact the tenure of the government, but they do not affect market returns in a big way.

From 1980-2018, India's annual GDP growth rate has been at least 5.5 percent. In fact, from 2003-15 it grew at annual growth rate of almost 8 percent. The resiliency of Indian economy is so strong that even in the most difficult year like 2008, GDP grew by 3.9 percent. Every year India's GDP has grown consistently despite which party was at the helm. This happened despite P V Narsimha Rao led minority Congress government with coalition partners led by the Left parties, who are often considered not good for the market. Political parties of India may be die-hard enemies, but their thinking on economic reforms is not very different and their ideologies are growth oriented.

Good things have happened post unexpected election outcome.

2004 Indian General Elections: BJP/NDA conceded defeat to Congress in 2004 general elections. Congress came back to power with support from Bahujan Samaj Party, Samajwadi Party, Kerala Congress and the Left Front. This was the worst possible outcome of 2004 elections for the stock market. Sensex crashed by 842 points on result day May 17th, 2004. This was the worst collapse in history (until then). But still Nifty rallied from 1292 to 3671 until 2009 elections happened. Best rally that one could imagine while ruling party had support from Left Front. That is 23.22 percent CAGR just for index without dividends in less than 5 years.

2016 US Elections: Hillary Clinton was expected to win 2016 US elections and market was expecting to rally with this outcome. Experts believed that a Trump win would sow uncertainty and cause a sell-off. But as we saw, the US markets rallied after Trump won the elections, providing big gains for the US stock indices.

As we see in the above table, there isn't much correlation between election outcomes and Indian stock market returns. Ruling political parties will come and go but it is the capitalism, increasing population, increasing employment, productivity gains, and innovation which will keep corporate profits growing and thriving. People will still need home, food, cars, medicines, insurance, bank loans, internet, cell phones, and many other countless things and services regardless of the election outcome.

Investors should not invest based on anticipated political outcomes. It is actually important to the see the big picture and invest in fundamentally sound companies which are available at reasonable valuation.

Happy investing!


Amit Rupani, CFA is an Independent Investor, practices Value Investing principles, manages money for long-term wealth creation through Equities asset class. Email: