On May 17 2004, the stock market was in an uproar. When India's GDP growth was rolling at 8%, micro-and-macro economic factors were substantial; corporate balance sheets were robust with encouraging prospects for the following quarters; NSE Nifty and BSE Sensex fell by around 17% because of election results.
There was a possibility that UPA would form the government with Communist party support. However, the economy's fundamentals were stable. Still, negative sentiments resulted in the losses of trillions of rupees in just two sessions on the same day, and this sensitivity shock took months to recover.
One of the members of NITI Aayog- the government's think tank, made a public statement regarding the change in policies in the automobile sector. However, government policy was still under formulation, and this was just an assumption, resulting in the wiping out of 5% market capital of auto manufacturers.
Since this change was over and above the impact of motor vehicles' domestic demand contraction, Nitin Gadkari (Road and Transport Highway Minister) and Nirmala Sitharaman (Finance and Corporate Affairs Minister) had to state to control the damage urgently.
The pandemic began its widespread rampage in the early 2020s, and the government took precautionary measures like social distancing and lockdown. These mere measures prompted the S&P index to witness a 35% drop in March 2020.
This drop was significant compared to the 2008 financial crisis caused by financial deregulation.
Stock market fluctuating prices make equity investments risky, and risk-averse investors are advised to stay away from the share market. One cannot produce the future performance of the Indian stock market due to dynamic factors and policies.
Some factors that affect Indian Stock Market are -
The Reserve Bank of India regulates the monetary policy in India and keeps reviewing it. Any changes in the Reverse Repo Rates or Repo Rates impact the stock prices. If RBI raises these rates, banks' liquidity reduces, making borrowing costlier and increasing the lending rates. With the costly borrowing rates, business communities find it difficult to service their debt obligations and start selling company shares, reducing stock prices.
Vice Versa happens when RBI follows a dovish monetary policy. Reduced lending rates increase credit expansion, considered a positive step, and the stock market begins to recover.
The Securities Exchange Board of India (SEBI) constantly monitors trading and investment policies. It keeps changing them, impacting the overall performance of NSE and BSE-listed shares.
When interest rates rises, the bank increases the lending rates, which increases costs for individuals and corporations, impacting the profit levels and affecting the shares of a company.
Inflation is when there is a sudden positive movement in the pricing of services and goods over a period of time. High inflation discourages long-term economic growth and investment. During high inflation, Indian Stock Market postpone their investment, which leads to -
Negative economic growth,
Fall in savings value,
Affects the stocks of luxurious companies.
Therefore, this not only impacts the purchasing power but also affects the investing power of companies and individuals.
Factors including budget, elections, stability, government intervention, and others may also significantly impact financial markets and the economy. Budget or political event announcements may create volatility levels in the market, affecting Indian Stock Market deeply.
How?
The sentiments of ordinary citizens may differ from investors' sentiments. People draw some expectations from the following political party and cite accordingly. Thereby, final result announcements may elicit a response from investors.
Short-term investors, like day traders, speculate on the coming or scheduled political events and invest within a week or a month. Long-term investors, on the other hand, do not influence their investment decisions based on daily events, take note of the policy decisions by the new government, and accordingly review their portfolios.
During the 2004 general elections, NDA Government, led by Atal Bihari Vajpayee, lost to the UPA, contrary to expectations. Election results were announced on May 13 2004. Sensex report for the next few days was -
Closed at 5,399 points on May 13 2004.
Fell 6% on May 14, 2004, and closed at 5,069.
On May 17 2004, recorded the third-worst fall, 565 points, and closed at 4,505.
All these figures reflect a thumbs down to the UPA government on December 27, 2004. Dr Manmohan Singh was elected the Prime Minister, and Sensex touched back 6,513.
Narendra Modi was expected to win, and the market was positively geared up for a second term. Sensex opened at around 39,815 points, and the market shot up by 1000 points, touching 40,000 for the first time in history, pointing to Narendra Modi-led NDA Victory.
However, apart from the strong positive sentiment amongst the investors, the profit booking drove down Indian Stock Market by 1300 points. Moreover, events including the Abrogation of Article 370, URI Surgical Strike and Demonetisation have also closely impacted the markets that follow policy and political announcements.
The Indian Stock market Institute In Jaipur is highly volatile, and it is no surprise that political factors can significantly impact its performance. Changes in government policy, such as tax reforms, changes in interest rates, or new regulations, can all substantially affect the stock market.
If you are an investor, it is essential to be aware of the potential impact of politics on the stock market. You can make more informed investment decisions by understanding the political landscape and the potential impact of policy changes.
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