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Impact Of Election Year On Equity Mutual Funds: What History Says?

Summary

Equity mutual funds has started giving good returns after the Lok Sabha Election but will the successful march continue in the future as well? Let’s find out with the help.

Impact of Election Year on Equity Mutual Funds: What History Says? The 2019 Lok Sabha Election went in favor of BJP as the NDA government managed to grab 353 seats. The ‘Modi Wave’ was celebrated across India with finance market also joining the party as the NIFTY & SENSEX created new records in the history. Except in 2004, the finance market followed the same track record and surged heights in this election year as well. But still there is some uncertainty among the Indian investors whether the celebration will continue in the upcoming months or not. To rest their queries, this article contains historic data of the effect of election on equity mutual funds in previous 4 elections that will help the investors in analyzing the situation better.

How Elections Affected the Equity Mutual Fund Market Earlier?

Lok Sabha Election 1999

In 1999, NDA-led government came into power with Late Mr. Atal Bihari Vajpayee swearing as the Prime Minister of India. The election result was according to the market sentiments which was also reflected by the SENSEX points. The index surged 7% of the gain after the results. Moreover, the positive uptrend continued for the next three months.

However, in this tenure several factors hampered the finance market with 9/11 attack becoming the major cause. The market fall to 50% after the domestic and global incidences, and at the end of the government rule the compound return (annually) was 3% with an absolute performance of over 14%.

To conclude, the market was bullish in the election year 1999 until hit by several factors.

Lok Sabha Election 2004

The UPA Government coming back to power was a shock to everyone with finance market not being an exception. As the verdict was opposite to the market sentiments, the market fall down to 15% in two-three trading sessions, hampering the growth of equity mutual funds. BSE-30 index fell from 5,358 points (as on 12th May, 2004) to 4,961 points (as on 21st May, 2004), a fall of 7.4%. Furthermore, it was the only election year in which the finance market followed a bearish trend.

However, the downtrend was sooner diverted towards uptrend mode. The bullish trend continued till 2007 with higher growth rate in GDP and high foreign investment inflows.The financial crisis of 2008 brought the successful journey at hault.In short, there was a downward volatility post-election but didn’t last much as the long term growth was good.

Lok Sabha Election 2009

Mr. Manmohan Singh became the Prime Minister for the second time as the UPA government continued its successful march. The political result was cheered by the finance market with SENSEX gaining 17% (as on 18th May, 2009). The positive trend of the equity mutual funds was put to rest by several scams, allegations that grabbed the ruling party. However, the complete tenure still managed to achieve 15.5% in the long term.

The market volatility continued in this election period as well.

Lok Sabha Election 2014

The Lok Sabha Election saw a major change as the BJP turned the tables. The confidence in the finance market, especially in the equity mutual funds was restored as the BJP government came in full majority under the leadership of Mr. Narendra Modi. The finance market gained momentum and closed at a gain of 1.1%. The finance market achieved a stable growth of 40% between 2014 to 2017 until hit by several factors. Dollar-rupee valuations, increased oil prices, NPA crisis, etc., were some of the factors that brought a downfall in the market.

The 2018 was a disappointing year for the investors as the market looked in no mood for the recovery.

In this election time period as well, we saw that market surged good heights in the election year until hit by major economic factors.

Lok Sabha Election 2019

The exit poll of Lok Sabha Election 2019 again helped equity funds to recover from the hardships of 2018. The celebration continued further when the election results came out with NDA government taking over the control once again. SENSEX reached 45,000 marks while NIFTY set a benchmark at 13,500. However, the ongoing US-China Trade War, payment defaults by financial institutions are some of the factors worrying the Indian investors. But with no major domestic economic issue, market is expected to remain bullish in the near future.

Final Verdict:After analyzing the pattern followed by the finance market, you must have learned that the election results of 4 out of 5 elections brought rally in the financial market which continued until any major economic issue hampering the growth. The same is the scenario this year as well, the finance market is expected to achieve new heights. Therefore, equity mutual funds are the best investment plan currently available that can provide high returns in the upcoming years.