“From Triumph to Turmoil: Election Results Prediction Using AI and Its Impact on Stock Markets”
Analysing 3 Cases
Comfortable Majority (Case 1): Always leads to positive market reactions due to perceived stability and clear mandate.
Reduced Majority (Case 2): Markets initially react with caution but recover as the government demonstrates stability.
Coalition Governments (Case 3): Markets react negatively due to perceived instability and policy uncertainty, but recovers when replaced by a more stable government.
Case 1: BJP Wins with Comfortable Majority
Historical Example: 2014 General Elections
- Outcome: BJP, led by Narendra Modi, wins a decisive majority.
- Market Reaction: The Sensex surged by around 6% on the day of the results (May 16, 2014) and continued to rise in the following months.
Summary: Markets responded positively to the promise of economic reforms and stable governance.
Case 2: BJP Wins but with Reduced Majority
Historical Example 1: 1999 General Elections
Outcome: BJP-led NDA wins, but with fewer seats than needed for an outright majority.
- Market Reaction: Initially, the markets were uncertain, causing a minor drop, but the market stabilized as the coalition managed to form a government.
Summary: Markets showed initial disappointment due to uncertainty but recovered as the coalition proved stable.
Historical Example 2: 2019 General Elections
- Outcome: BJP wins a majority but with a slightly reduced margin compared to 2014.
- Market Reaction: Despite the reduced margin, the market viewed it positively as a continuation of the previous government’s policies, leading to a rise of around 2.5% on results day.
Summary: The market was reassured by continuity in governance, leading to a positive reaction.
Case 3: BJP Fails to Form Government, INDI Alliance Takes Over, BJP topples this Coalition within a year
Historical Example: Maharashtra Political Crisis
- Outcome: After the 2019 Maharashtra Assembly elections, the BJP emerged as the single largest party but fell short of a majority. The Shiv Sena, NCP, and Congress formed an alliance (Maha Vikas Aghadi) to form the government.
- BJP’s Move: Despite being the single largest party, the BJP, unable to form a government, opted to sit in the opposition initially.
- BJP’s Strategy: In a dramatic turn of events, the BJP, led by Mr.Devendra Fadnavis, forms a government by breaking Shiv Sena and NCP.
CASE 3 — STOCK MARKET IMPACT
The stock market’s reaction to political events like the Maharashtra political crisis can be significant and may follow a pattern based on investor sentiment and perceptions of stability. Here’s how the stock market might react:
1. Immediate Volatility: Following the sudden turn of events, the stock market is likely to experience heightened volatility as investors react to the uncertainty surrounding the political situation. Uncertainty often leads to selling pressure as investors seek to mitigate risks.
2. Initial Bearish Trend: In the immediate aftermath of the crisis, the stock market could witness a bearish trend as investors adopt a cautious stance. This could result in a decline in stock prices across various sectors, particularly those sensitive to political stability and government policies.
3. Sectoral Impact: Certain sectors such as banking, infrastructure, and real estate, which are closely linked to government policies and investment sentiment, may experience sharper declines compared to others. Investors may sell off stocks in these sectors amid concerns about potential disruptions to policy implementation and economic growth.
4. Foreign Investor Sentiment: Foreign institutional investors (FIIs) often closely monitor political developments and may adjust their investment strategies accordingly. In the case of political instability, FIIs may reduce their exposure to the Indian market, leading to further selling pressure.
5. Flight to Safety: During periods of political uncertainty, investors may seek refuge in safe-haven assets such as gold and government bonds, leading to a shift in investment preferences away from equities. This flight to safety could exacerbate selling pressure in the stock market.
6. Resilience and Recovery: Despite the initial negative reaction, the stock market may exhibit resilience and gradually recover as clarity emerges regarding the resolution of the political crisis. Positive developments such as the formation of a stable government or the restoration of political stability could bolster investor confidence and drive a rebound in stock prices.
This is a personal opinion as a citizen of India. I’m not a trained psephologist or a political activist.
Disclosure : I am not SEBI registered. The information provided here is for education purposes only. I will not be responsible for any of your profit/loss with this channel suggestions. Consult your financial advisor before taking any decisions. It’s neither an advice nor endorsement.
