Modi 3.0 is a coalition govt: Should you worry about your investments in stock market, mutual fund or fixed-income?

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The stock market saw a sharp decline in a day this week following the results of the Lok Sabha elections 2024. Many young investors who had started stock market investments in the last two to three years were almost on the edge as their investments dipped into the red; even the well-diversified portfolios did. While the stock market swiftly recovered, some investors, particularly the newcomers, are worried about their investments as a coalition National Democratic Alliance (NDA) government prepares to take oath on June 9, 2024. Will the volatility in the stock market continue? How will NDA-3.0 be for your hard-earned money? Is there a bad government for your investments? Should the incoming government worry debt investors? Should you invest in equities, mutual funds or debt instruments? Questions such as these are worrying investors. So here are some answers that should give an idea of what is in store for you in the next five years.

How the stock market performed in previous election years

The historical performance of Nifty 50 during previous election years (since 2000) unveils noteworthy trends. Out of all Lok Sabha elections held since 2000, the Nifty 50 index has only declined once in the month leading up to the polls — in 2004. Naresh Bulchandani, CFA, says, “Except for the year 2004, the Nifty 50 index has seen positive returns in the three months leading up to election results in 2009, 2014, and 2019.” Elections have historically caused sharp market movements. But markets typically stabilise one to six months after that event, says Manish Chowdhury, Head of Research, StoxBox.
The index has displayed a consistent upward trajectory in the six months leading up to elections, often giving double-digit returns. For instance, in the run-up to the 2004 elections, the Nifty 50 surged 12.52% in a six-month period, according to a report by SBI Securities. In 2009, the Nifty 50 surged 30.65% before the elections, with returns increasing even more after the elections. Barring 2009, the Nifty has consistently yielded positive returns in the year preceding election results, says Bulchandani.

Returns from Nifty 50
Election year Lok Sabha Results Ruling govt 6-months prior to election result 6-months after election result
2004 May 13, 2004 UPA-I 12.52% 3.51%
2009 May 17, 2009 UPA-II 30.65% 37.70%
2014 May 16, 2014 NDA-I 17.62% 15.40%
2019 May 23, 2019 NDA-II 11.51% 0.11%

Source: SBI Securities

When markets were in positive zone six months after polls

Now let’s take a look at how the market has performed after election results were announced since 2000. The Nifty 50 experienced negative returns only once in the one-month period following the election results in 2004. However, it recovered the losses in just five months. In the subsequent six-month period, it gained 3.51% . Under the United Progressive Alliance (UPA)-II government in 2009, the index saw a significant increase to 37.70% during the six months after elections.”In previous instances, from six months prior to elections and six months after elections (one-year period), markets have provided average returns of 43.2%,” says Anoosha Soham Bathwal, CEO & Founder of Dhanvesttor.

Stock market performance during UPA-I, UPA-II, NDA-I, and NDA-II governments: Is any government bad for the stock market?

When we look at a five-year term, the Nifty 50 shot up by nearly 115% during UPA-I (2004 to 2009); and the index advanced 94% during UPA-II (2009-2014), according to SBI Securities. “During Bharatiya Janata Party (BJP)-led NDA-I and NDA-II, the Nifty 50 returned 62% and 88%, respectively,” says Bulchandani. “Hence if the last 20 years data is anything to go by, governments will come and go but the stock markets chart their path with direct linkage to the corporate earnings cycle.”

5-year period between two elections Ruling party Nifty 50 returns (%)
13 May 2004 to 16 May 2009 UPA-I 114.97
16 May 2009 to 16 May 2014 UPA-II 93.92
16 May 2014 to 23 May 2019 NDA-I 61.45
23 May 2019 to 4 March 2024 NDA-II 88.25

Source: SBI Securities

Narendra Solanki, Head Fundamental Research-Investment Services, Anand Rathi Shares and Stock Brokers, says, “Markets are largely indifferent to which political party is in the government, and just looks for stable government and growth-oriented policies. The Indian economy inherently has a lot of room for growth and it is just a matter of additional delta in growth with a more supportive government at the helm. Also, the maturity of the Indian political system is underscored by the fact that since 1991, major policy reforms initiated by the previous governments have been reversed, despite ideological differences between successive governments and the personalities of different prime ministers. This augurs well for continuity of economic reforms.”

Stock market outlook in 2024: How a coalition government of NDA-III will impact your stock market investments

In the long run, earnings take centre stage when it comes to market movements. “While markets prefer a stable government at the Centre, they have performed strongly in times of coalition governments as well. This reflects that markets are agnostic of the short-term volatility created by elections and government at the Centre. However, the policies of the government will determine the movements of the market,” says Bathwal.

Apart from a stable government, various external factors such as global economic trends, geopolitical events and international trade relations also impact the stock market. Additionally, factors such as corporate earnings, technological advancements and market sentiment play critical roles in shaping stock market performance. “As a result, investors need to consider a comprehensive set of variables, beyond just government actions, to make informed investment decisions and accurately predict market trends,” says Ajit Mishra, SVP of Research, Religare Broking.

The market cap is doubling every five to six years given the strong economic fundamentals of the country, says Devam Sardana, Business Head at Lemonn.

Giving a glimpse of how the market will be in the post-election period, Shrikant Chouhan, head of equity Research at Kotak Securities, says, “Factors that would be relevant for the market would include the economic agenda of the new government and the FY25 Union Budget. We expect the new government to continue with its investment-led economic agenda, but it may tweak its priorities to support consumption and employment. We will get a better sense of the same over the next few weeks and in the FY25 Budget.”

Solanki expects the Nifty 50 to likely yield 10-12% over the next 12 months.

“We expect further correction in the equity market, with a rotation towards defensives. Pharma, FMCG and IT could see outperformance in the near term. We also like private banks post this correction and believe they are the well-positioned. PSUs and defense sector can see further correction before stabilisation,” says Jitendra Gohil, Chief Investment Strategist, Kotak Alternate Asset Managers.

How mutual fund sector has performed in UPA-I, UPA-II, NDA-I, and NDA-II governments

The Indian mutual fund sector started its journey at the end of January 2003, marked by the establishment of 33 mutual funds collectively managing assets under management (AUM) of Rs 1.21 lakh crore. Among these, UTI stood out with an AUM of Rs 44,541 crore, demonstrating a prominent position in the sector’s nascent stage. “During the subsequent era of the UPA government, spanning 2004 to 2014, the industry observed a substantial surge due to notable advancements. The AUM escalated to Rs 1.57 lakh crore by 2004, further ascending to Rs 5.13 lakh crore by 2008 and Rs 7.66 lakh crore by 2013,” says Amit Goel, Co-Founder & Chief Global Strategist, Pace 360. In April 2014, the AUM had already reached Rs 9.45 lakh crore.

During the NDA government, the mutual fund sector saw unprecedented growth. Goel adds, “The AUM had achieved the milestone of Rs 10 lakh crore by May in 2014. This upward trajectory continued steadfastly, with the AUM scaling to Rs 20 lakh crore by 2017 and further to Rs 24 lakh crore by 2018. By 2019, the AUM had skyrocketed to Rs 35 lakh crore, demonstrating the industry’s robust growth trajectory. Even amid the adversities posed by the Covid-19 pandemic, the sector displayed resilience, with the AUM reaching Rs 30 lakh crore by November 2020. In 2022, it ascended to Rs 35 lakh crore, and by 2024, it soared to Rs 57.26 crore, underscoring the sustained momentum and burgeoning investor confidence in the Indian mutual fund landscape.”

Mutual fund investors: Influence of government on the mutual fund sector

The influence of the government is just one of the many factors that led to this growth. Economic policies, global trends, corporate earnings, interest rates and geopolitical factors play significant roles in mutual funds’ performance, he adds. “Market cycles and volatility occur regardless of the ruling government, making long-term goals essential. Skilled mutual fund management, tax policies and diversification are crucial. While government policies do impact investments, focusing on diversification, effective management and long-term objectives is more important for investors,” Goel adds.

Vishal Dhawan, a Certified Financial Planner and Founder of Plan Ahead Wealth Advisors, says, “Policy continuity has been a common thread thus far across governments — and thus the impacts on the trajectory of the economy and subsequently on mutual fund investments have not been significantly different. Equity mutual funds are driven by earnings growth of businesses. Debt MF investments, in contrast, are driven by inflation and fiscal policy. So government policies definitely have some impact on debt mutual funds.”

Is a coalition government good for debt investors?

“During the UPA-I, from 2004 to 2014, Indian companies’ debt investments grew steadily, from Rs 27.05 lakh crore in 2004 to Rs 83.66 lakh crore in 2014. This period also saw significant investment in treasury securities, reflecting risk management strategies. Under the NDA government, from 2014 to 2024, debt investments continued to rise, reaching Rs 253.97 lakh crore by 2024,” Goel adds. These investments play a crucial role in corporate finance, impacting financial stability and risk management strategies.

The stability or turbulence of a government plays a crucial role in shaping debt investments in the country. In times of a stable government, where policies are consistent and predictable, investor confidence is strong. Debt instruments issued by such governments are perceived as safer, resulting in lower interest rates on government bonds. Consequently, investors are more inclined to retain government debt, contributing to a sense of stability in financial markets.

On the other hand, a government under stress, facing fiscal challenges like high deficits or excessive debt, leads to uncertainty among investors. This heightened risk perception leads investors to demand higher interest rates on government bonds as compensation. Additionally, stressed governments may resort to measures such as printing money or even defaulting on debt obligations, which can have detrimental effects on bondholders. In essence, the stability or instability of a government significantly influences investor sentiment, interest rates and the overall dynamics of the debt market in India.

Whether a one-party majority government or a coalition government, what matters is stability of the government. A stable government, even if it is a coalition, can deliver good economic performance.

Abhishek Kumar, a SEBI-registered RIA and Founder of, says, “Return from debt instruments are highly correlated to inflation in the economy. An unstable coalition government, to keep its constituents pacified, runs the risk of a higher fiscal deficit due to increased public spending on programmes which in turn could fuel inflation and lead to a rise in interest rates. When interest rates rise, the return from newly issued debt goes up. In contrast to this, a stable coalition government doesn’t have such compulsion and can target reduction of fiscal deficit.”

What debt investors can expect from Modi 3.0

Gohil says, “We recommend adding duration to portfolios opportunistically. We believe India’s macro fundamentals will remain strong, and the focus will continue to be on financial stability. Hence, we expect yields to head lower, albeit slower than earlier anticipated.”

He adds, “The INR could experience near-term volatility, but we believe it may depreciate at a slower rate than the historical average of around 4%. Weaker dollar fundamentals against India’s improved fundamentals may lead to a depreciation of around 2% per year in the medium term, in our view. Gold continue to maintain our positive view on Gold due to heightened geopolitical tensions and weakening dollar fundamentals.”