Election effects: Expecting the unexpected

The Sensex was up 4.6 percent in the three sessions since the results were declared, and the market had shrugged off the poll results

Samar Srivastava
Published: Dec 16, 2018 05:38:51 PM IST
Updated: Jan 12, 2019 11:25:11 AM IST

After studying law I vectored towards journalism by accident and it's the only job I've done since. It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably now tied to politics. I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me, there are plenty of those in Asia at the moment.

g_111519_markets_814216816_getty_280x210.jpgImage: Kunal Patil / Hindustan Times via Getty Images

How do markets react to unforeseen events? The state election results on December 11, which saw the BJP lose its majority in three states, were expected to result in declining stock markets. Instead, the opposite happened. The Sensex was up 4.6 percent in the three sessions since the results were declared, and the market had shrugged off the poll results.

In doing so the Indian markets follow a global script: When Donald Trump won the US presidential race in 2016, the Dow recovered within days; when the UK voted to leave the EU, the FTSE began pricing in higher profits for British exporters due to a weaker pound. Similarly, in 2004, the NDA’s shock defeat had prompted a quick brutal correction before rising corporate earnings resulted in a four-year bull run. The 2009 UPA’s re-election euphoria was short-lived, despite the markets hitting two upper circuits on election day.

Those waiting for a correction before the 2019 elections in India would do well to remember that “more money has been lost waiting for corrections than in the actual correction”. As blogger Rohit Chauhan tweeted after the December 11 results: “Media: Expect markets to drop. Actual: Markets are up. Lesson: For the nth time ignore the chatter and focus on companies and their business. Over the long term, the noise cancels itself out.”

(This story appears in the 04 January, 2019 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)

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