How Indian Markets React A Year Before The General Election
Only once on the last five occasions, Nifty 50 has returned substantial gains in the year before the Lok Sabha polls.
In little over a year, India will hold its next general election. And going by what has happened in the past, it's the year ahead of the polls that markets really move. This time, an added combination of high inflation, quantitative tightening, and a global banking crisis at play already.
Equity markets in the calendar year before the past five general elections have shown wide variance, with NSE Nifty 50 returning gains of 70% to suffering a plunge of over 50%.
And the benchmark has been muted in the year before the last two general elections—rising less than 6% in 2013 and a little over 4% in 2018.
A Red Nifty In 1998
The year 1998 saw two global crises—one in Asia and the other in Russia. Accounts from the time place the catalyst for the Asian financial crisis as Thailand was forced to float the baht, leading to a region-wide contagion. Subsequently, Russia devalued the ruble and defaulted on domestic debt.
The Nifty 50 started the year 1998 at 1,086.2, and after witnessing a dip in February, the index hit a yearly high of 1,212.75 on April 21. From there on, it went downward with a few bursts of surge. On Oct. 20, 1998, the Nifty 50 hit it lowest point for the year at 808.7.
The index fell 18.22% during the year. But it bounced back in the next, rising 66.19% over the course of 1999.
Nifty Delivers 70% Returns In 2003
After an initial dip in 2003, the Nifty 50 rose in the latter half of April, and maintained the gains for the rest of the year. From the year's low of 924.3 on April 25, the benchmark went on close the year at its highest at 1,879.75 on Dec. 31, 2003.
The index returned 70.86% gains that year, which moderated significantly by the next. The Nifty rose 8.8% in 2004. For 2003, the index's P/E ratio was 21.16, and 19.66 in 2004.
Abysmal Returns Of 2008
In January 2008, the NSE Nifty, which had reached the 6,000-mark just a month prior, stumbled and could not regain its momentum as the world was hit by the global financial crisis. Several factors like the collapse of the U.S. housing bubble and sub-prime mortgage crisis culminated in the bankruptcy of Lehman Brothers. The global crisis engulfed most of the Americas and Europe, with the rest of the world feeling the ripples.
In the very first month of 2008, Nifty 50 touched the year's high at 6,287.85 on Jan. 8. It maintained a downward trend for the rest of the year, reaching a low of 2,524.2 on Oct. 27, 2008. The index tumbled 51.84% during the year.
It bounced back though, and some more, with returns reaching 71.46% at the end of 2009.
Recovery After A Fall In 2013
In 2013, the Nifty 50 recovered from a decline in the months of August and September caused by global headwinds, and managed to end the year with positive returns. The year saw the index weighed down by factors including concerns over a Fed tapering on the global front, and a weaker rupee, high inflation and slowing growth back home
The benchmark tanked to the year's low of 5,285 on Aug. 28, 2013, but recovered to touch the year's high of 6,363.9 on Dec. 9, 2013. The index gave 5.93% returns, with a P/E ratio of 17.45.
By the following year, the index managed to rebound, rising 31.44% at the end of 2014 with a P/E ratio of 19.67.
Ups And Downs Of 2018
The year 2018 saw the Indian economy finding its legs after the demonetisation shock, only for the domestic markets to be hit by the IL&FS credit default debacle. The crisis triggered a liquidity crunch in the NBFC sector, which ended up affecting major corporations including Dewan Housing Finance Ltd. and Reliance Anil Ambani group. Non-banking stocks across the board bore the brunt as most of them suffered losses by the last quarter of 2018.
The Nifty crossed the 11,000-mark in January and then dipped to the year's low of 9,998.05 on March 23. It staged a recovery to touch the year's high of 11,738.5 on Aug. 28.
From there on, the Nifty fell again to around 10,000-level in October, inching up to close the year just shy of 11,000. It delivered returns of 4.09% during the year.
By 2019, the index recovered, giving 11.53% returns during the year.
As Things Stand...
As of today, 39 of 50 analysts polled by Bloomberg have a buy rating on NSE Nifty 50. The remaining 11 have a hold rating for the index.
The target price for Nifty over the next 12 months is 20,777.46 with a return potential of 17.2%, Bloomberg data showed. In the last last 12 months, the index has returned 1.7%.
