IMPACT OF POLITICAL

EVENTS ON STOCK
MARKETS
Pujit Singh
Submitted to:
Dr. Rajesh Jhamb

Shivam Miglani
Kushal Walia
Sahib Singh

INTRODUCTION
The Stock Market is witnessing heightened activities and is increasingly gaining
importance. Several theories have been established by various Finance Maestros
regarding the factors crucial in the rise and fall of various stock market indices, viz.
Sensex, Nifty, etc. The current project aims to establish and consolidate the fact that
there is a tremendous impact of political changes and decisions on the stock market.
This study is based on data extracted from the Indian Stock Market, primarily the S&P BSE
Sensex. The source of each data has been mentioned along with. The time period chosen
is the last one year, which saw substantial changes in the Indian political scenario, with
the Narendra Modi led Bharatiya Janata Party coming to power at centre with a large
majority and the Arvind Kejriwal led Aam Aadmi Party coming to power in Delhi elections
with an even larger majority.

OBJECTIVES
1. To establish and consolidate the fact that there is a tremendous impact of political
changes and decisions on the stock market.
2. To link changes in the stock market with change in the investor confidence due to
significant political events
3. To present the Sensex trends of last one year and link the same with significant political
events
4. To try and present data to help readers predict Sensex movements in case of such a
political event
5. To relate changes in the stock market before and after elections
6. To show how the stock market is affected depending on whether the government wins
absolute majority or a coalition government is formed

SIGNIFICANCE AND SCOPE

Political aspects, though informally accepted to affect the market, has not been
provided enough focus in formal research. The focus of this project, therefore,
becomes identifying the major critical incidents that have affected Indian and
foreign stock markets in order to enable formal research on the topic.
Not only limited to enabling formal research, the project also aims to help readers
predict the direction of stock markets in view of political events.
The project examines major political events that occurred in India in the past few
years, and aims to link them to the direction of the stock markets at the time.

Telegraph Money has compiled data from the 11 elections that have taken place since 1966 to
find out how British shares have fared both in the run up and in the aftermath. In the chart
there are two bars for each election year, one showing the performance of the FTSE All Share
index 12 months before the election took place and the other the performance over the

TIMELINE OF EVENTS

Narendra
Modis
candidature
announced

Chai pe
Charcha
campaign
begins

Campaign
continues

Exit polls favor

NaMo led BJP

Haryana and
MH elections

FDI

Independence
Day Speech

Union Budget

100 Days of
NaMo

Delhi Assembly
Elections

EVENT 1: OFFICIAL ANNOUNCEMENT BY BJP:

NARENDRA MODI AS PM CANDIDATE
9 pm, Saturday, September 14, 2013: BJP announces Mr. Narendra Modi
as its Prime Minister Candidate. (6)
Monday, September 16, 2013: Sensex rallies 350 points. Rupee soars to a
near month high of Rs. 62.50 per dollar.
Other Factors: It was stated in the newspaper as a jump on hopes of a
prolonged easy monetary policy in the US, a factor that we can safely
categorise as a World Event. (7)

EVENT 2: CHAI PE CHARCHA

CAMPAIGN BEGINS
Topic: Good Governance
Wednesday, February 13, 2014: BJP begins the Chai Pe Charcha
Campaign
February 17,2014 March 10, 2014:Sensex rises from 20,141 points to
22,043 points.
Other factors: Since 1991, the Sensex has always risen sharply in the runup to the general elections. That trend was holding this time as well.
FinMin bringing the CAD and Fiscal Deficit numbers down.

EVENT 3: CHAI PE CHARCHA CAMPAIGN

CONTINUES
Topic: Farmers and Agrarian Crisis
5 pm, March 20, 2014: BJP begins the Chai Pe Charcha Campaign on the
Farmers Crisis
March 21,2014 April 3, 2014:Sensex rises from 21,780 points to
22,626.5 points.
Other factors: Since 1991, the Sensex has always risen sharply in the runup to the general elections. That trend was holding this time as well.

EVENT 4: EXIT POLLS FAVOUR NAMO-LED

BJP
Almost every poll, including the poll of polls indicated at least 250+ seats for the
NDA government.
2nd Week, May 2014: Opinion Polls show BJP in the clear majority
12 May, 2014: Exit Polls show BJP in absolute majority with a large margin
May 9, 2014 May 16, 2014: Sensex shoots from 22,309 points to 25,354 points.
The Market gained 216.14 points on the 15th May 2104 itself. For a majority 272
seats are required out of the 543 total seats. BJP alone had won 282 seats. It was
expected that BJP would form a non-alliance government, thereby meaning a more
stable government. However, to maintain the strong political ties, BJP formed a
coalition with other political parties. The NDA alliance now had 336 seats. But, since
it was an alliance government, market sentiment changed to a more skeptical one.
So, Sensex dropped several points to 24,111.74 points.

EVENT 5: UNION BUDGET

11 am, July 10, 2014: Finance Minister, Arun Jaitley, presented the NDAs
first Union Budget.
July 7, 2014- July 10, 2014: The market sentiments were not in favour of
the NDA government for its budget. The market remained Bearish for the 3
days and saw a drop in Sensex from 26,147 points to 24,925 points.
July 10, 204- July 24, 2014: Seeing some growth opportunities in the
budget and positive steps, the market rose back to 26,275 points.

EVENT 6: INDEPENDENCE DAY SPEECH

Words Narendra Modi focussed on during
his speech. (Mitron has been converted to
brothers)

August 15, 2014: Narendra Modi delivered the speech at Red Fort on the occasion
of the 68th Independence Day. Narendra Modi talked about welfare, good governance,
digital India, and, above all, the Pradhan Mantri Jan Dhan Yojna. The Jan Dhan Yojna
was launched on 28th August.
August 14, 2014- September 8, 2014: Sensex rose from 25,945 points to 27,361
points.

EVENT 7: FDI
August 2014: In August 2014, the Cabinet of India allowed 49% foreign
direct investment (FDI) in the defence sector and 100% in railway
infrastructure. The defence sector previously allowed 26% FDI and FDI was
not allowed in railways.
August 10, 2014- September 8, 2014: Sensex rose from 24,909 points to
27,361 points.

EVENT 8: HARYANA AND MAHARASHTRA

ELECTIONS
October 15, 2014: Elections for the Legislative Assemblies of Haryana and
Maharashtra were held on 15th October, 2015.
October 19, 2014: Results were out. BJP was victorious in both the
elections. It formed governme
October 17, 2014- November 28, 2014: Sensex rose sharply. It was up by
1.28% by 20th October. During this period, Sensex rose from 26,927 points to
28,827 points. nts with SAD and Shiv Sena respectively in Haryana and
Maharashtra.

EVENT 9: 100 DAYS OF NARENDRA MODI

On the eve of Narendra Modi government's 100 days in
office, institutional buying took the Sensex to a new peak
and closer to the 27,000 mark while Nifty, for the first
time ever, closed above the 8,000 level. The day's strong
rally came on the back of a stronger than expected GDP
growth for the first quarter of fiscal 2015. This added Rs
1.26 lakh crore to investors' wealth with the BSE's
market capitalization at an all time high of Rs 94.1 lakh
crore. With across the board buying, Sensex closed 229
points higher at 26,868, while Nifty closed 73 points up
at 8,028 as foreign investors net pumped in over Rs 554
crore into Indian stocks, while domestic funds were net
sellers at Rs 562 crore.

EVENT 10: THE DELHI ELECTIONS 2015

A Delhi Legislative Assembly election was held on 7 February 2015 to elect 70 members of
the Sixth Legislative Assembly of Delhi. The results were announced on 10 February 2015.
Aam Aadmi Party secured an absolute majority in the assembly, winning 67 of the 70 seats.
Polling took place at 12,177 polling stations. As many as 95,000 government officials were
roped in for election duty. 16,000 control units 20,000 ballot units were being used for polling.
As for security inside polling booths, 1,200 micro observers oversaw the entire procedure and
also reported technical problems in EVM operations. According to the Delhi CEO, 43,235
postal ballots were received in comparison to 41,095 during the Assembly Elections 2013.
A record 67.08% turnout was registered on the election day. The voter turnout was 1.22%
higher than 65.86% polling in the 2013 Assembly polls. The polling percentage was 65.07% in
the Lok Sabha polls in April, 2014.

EVENT 10: THE DELHI ELECTIONS 2015

January 14, 2015 January 30, 2015: With the ABP opinion poll in favour of
BJP, the party ruling at the centre, Sensex started rising. It went from 26,793
points to 29,823 points. (5)
January 31, 2015- February 10, 2015: The opinion polls towards the end of
January suggested that AAP would come into power. This was not in the best
interests of the investors. The market acts bullish in case of a stable government.
A pro-development and pro-industrialisation Modi led BJP was appropriate for the
stakeholders. However, with indications that AAP would win Delhi elections, the
stability of the NaMo government was at stake. Hence, the market acted bearish.
The Sensex dropped from 29,823 points to 28,031 points.

EVENT 10: THE DELHI ELECTIONS 2015

February 10, 2015 February 19, 2015: From 28,031 points to 29,536
points (5), Sensex gained points. This may be due to the following:
A strong wash out at the Delhi Elections, winning 67 of the 70 available seats,
meant that AAP was trusted by the people in large and will continue to remain
in power in the Delhi LA for a considerable period. This stability was in best
interest of many investors.
AAP in Delhi LA meant that BJP had a strong competitor now. With Punjab
elections in 2 years, NaMo led NDA had to work harder and fulfill the promises
offered.
It may be a mere correction to the sudden fall in Sensex.

EVENT 11: FULL YEAR UNION BUDGET

The Narendra Modi governments first full-year Union Budget turned out to
be a volatile affair for stocks with the Sensex swinging 700 points, but
promise of lower corporate taxes and deferral of general anti-avoidance rules
(GAAR) helped the benchmark finally end 141.38 points upthe first rise on
a Budget day in four years.
The Nifty rose 57 points to finish above the 8,900-level. Shares of banking,
healthcare and auto sectors shot up on good buying while consumer goods,
consumer durable and power counters fell on selling pressure.

EVENT 11: FULL YEAR UNION BUDGET

In key budget announcements, finance minister Arun Jaitley proposed to cut corporate tax from
30% to 25% over four years and deferred the implementation of general anti-avoidance rules
(GAAR) by two years. The 30-share BSE benchmark Sensex closed 0.48%, or 141.38 points,
higher at 29,361.50, while the 50-share Nifty ended 0.65%, or 57.25 points, higher at 8,901.85.
Among Sensex gainers, Axis Bank Ltd rose 8.15% to Rs.613.40, while Sun Pharmaceutical
Industries Ltd rose 3.62% to Rs.911.
Among the losers, ITC Ltd fell 8.09% to Rs.361.95 after finance minister Jaitley increased excise
duty by 25% on cigarettes up to 65mm in length. Bharat Heavy Electricals Ltd fell 2.84% to
Rs.263.15.
Among the sectoral indices, the Bankex was the top gainer, up 3.27%, while the FMCG index
lost the most, 4.09%.

OBSERVATIONS
It was found that in the last financial year, most political events had some
effect, positive or negative, on the stock market and trading situation in
India.
It was also found that political events have not been viewed to be influencing
trading in academic research.
The Stock Market acts bullish in any possible condition of anticipated political
stability
If the same political party wins a majority in the State Legislative Assembly
Elections as the ruling party at the centre, it is a promising sign and is
perceived as a promoter o political stability. Hence, the market acts bullish.

OBSERVATIONS
On the contrary, different parties at the centre and in a state makes the
market bearish.
A coalition government is perceived as less stable one. A single party forming
the government would make the stock market more bullish.
The stock market always tends to rise before the general elections.
Manifestos of the political parties leading in the opinion polls have direct
impact on the share prices of the related stocks.
As investors, one can safely invest in stocks of companies that will benefit
from the political event that takes place.

DISCLAIMER
The scope of this study is limited to exploratory and qualitative research.
Hence, we cannot conclude that any correlation between these events and
the market directions can be construed as causation factors for such changes
in direction.
Since every single event could not be evaluated, we have only included the
ones that had the highest impact.