The stock market has experienced a lot of bullish since years especially after 1980. But since 2014, when BJP came to power, India was reeling in an economic crisis. The currency was bleeding in comparison to the dollar, which made our country stood up in the ‘Fragile Five’ along with Turkey, Brazil, South Africa, and Indonesia.
There has been seen a tremendous decrease in the foreign exchange reserves in India as there are sharp outflows made from emerging markets from investors. Followed by the accentuation that the oil prices had shot up to the new heights as India is highly dependent on oil, the US Fed began to withdraw monetary stimulus, the Current Account Deficit, as well as inflation, was out of control. It was then the government in power – UPA i.e United Progressive Alliance led by Congress; was raised a serious question of governance.
As the results, share markets revolved under such heavy bleeding by the outflows of FIIs, a new government Bhartiya Janata Party led by Narendra Modi emerged. And with the General Elections coming up this 2019, investors are worried and wondering how it will affect the stock market.
What were the expectations?
Then in 2014, it was expected by the FIIs, retail investors, financial gurus and common people that change would rule in with the setting up of a new government. And expectedly, when Modi government came to the power, there was seen a huge wave of the new investments carried along with the new foreign investments, as well.
Reforms such as GST, Demonetization, Aadhar card issuance, Make in India, infrastructure and rural spending, a vigorous step to improve foreign relations was taken up by the government; which were also supported by other variables such as oil prices which, however, fell drastically since 2014 and Domestic Institutional Investors (DIIs) beating the investments made by Foreign Institutional Investors.
There has been a positive growth in the market after the on-setting of the new government of Modi, since 2013, resulting in the Sensex rise at an odd level of 24,000 jumpings to 34,000 as of October 2018. Financial gurus today compare our situation much like 2013. However, given the recent happenings with the IL&FS tale playing out, it led to a tragic effect in most NBFCs.
Oil prices shot up by more than 50 percent since the last year with the USA Fed Reserve on tightening mode, the rupee was hovering around Rs. 53 in 2013 has touched a new level of Rs. 74 this financial year.
RBI has been selling its foreign reserves to support the value of the rupee which is falling tremendously shocking and has been performing worst in Asian currency by dropping its value by more than 12 percent this fiscal year. The government is trying hard in every possible way to meet its fiscal deficit before the election in May 2019.
On the same time, international investors are betting high on investing in India after a stable government came to the power in 2014 and after it empowered the Indian investments from the foreign investors. were back in 2013.
India today is the best-performing country in the world comparison with GDP growth touching 8.2 percent in quarter 1 of the financial year 2019. However, the global growth is slowing this year after the International Monetary Fund cut its global growth rate forecast from 3.9 percent to 3.7 percent to the financial year 2019.
How will the General Elections affect the stock market in 2019?
Now let’s see, what effect it would have on the stock market. In order to analyze that, we must check the history of such events. So we check the previous five Lok Sabha elections and we found that every time market moved a minimum 10% on either side during election month. So this time also we are expecting huge movement during the election.
Now technically at present, Nifty failed to hold life highs around 11750-11800 and retraced sharply to 11600 levels. This is typically a not good sign for short term outlook for the market and we could see some more weakness in nifty.
However, bank nifty was still way above its previous life highs of 28800 and trading at 29700 levels. So overall, we can say that the market is in short term correction. But after that Nifty is likely to break 10800 in coming months as per the present technical set up of the market.
What Market strategy would safeguard your investment?
Now for the investor, the election is the only one-month event after which it is business as usual. However only under one condition, the market will change its direction on the negative side; that is s when no one gets a clear majority. Under that condition, the market will go to the downside and possibly market will see 10% corrections.
Now as shown in the following chart, Nifty made false breakout at lifetime highs. This is not a good sign for the market. So now nifty has to close above 11780-11800 level to resume its upward journey. At present FII also investing in the market, so it is more likely that the market will see a breakout on the upside.
So whenever Nifty close above 11800 levels, investors should aggressively buy as after that level we would see a sharp rally in the market.
So before or after the election, if nifty takes that level investor must buy and hold. Else one should not add more position in the market at this point of time.
As it is conclusive, that how the situation will pan out in May 2019 and how the markets have been behaving lately, it is advisable that investors take decisions cautiously before investing in the market in the election phase where most of the situations could turn uncertain.
