The Impact of General Elections 2019 on Indian Stocks

The Impact of General Elections 2019 on Indian Stocks

Elections have a clear impact on the stock markets and investment portfolios all over the world, especially in India. Market volatility is particularly high months before and after the elections.

Election Day volatility is traditionally seen as an investor’s nightmare, but a trader’s opportunity. It provides the best time for day traders to make the most money.

Indian General Elections 2019 have gripped the attention of most local and international investors whose capital is tied to the stock market.

The fact is that elections have always made a significant impact on the stock markets. Investors become jittery during the run up to the elections. The uncertainties regarding election fuel fear that results in panic among the investors.

So, how will the General Elections 2019 in India affect the local stock market? What should be the strategic move of investors to maximize from the opportunity?

About the General Elections 2019 and Indian Stocks

The outcome of the elections, to be held on April 11, will have an impact on the Indian stocks. The policies framed by the newly elected government will affect the trade and economy as well as the 
stock market.

The Indian stock market has shown amazing maturity in recent years. The number of companies, capitalization, and value has grown exceedingly fast in the past few years.

Elections have a short-term effect on the market sentiments. The anticipated reforms by the new government drive the sentiments of the market.

To understand the possible impact of Election results on the stock market, we have to look back at the market during the previous elections.

Stock Market Corrections During Previous Elections

Analysis of stock market performance during past elections paste a conflicting picture. Indian stock markets have rallied after the October 1999, May 2004, and May 2014 election results. The biggest change took place during the 2014 elections when the stock markets increased by nearly 4457 points as compared to a year earlier.

However, the Indian stock market declined in the year 2009 as compared to the previous year. This may be due to the reverberations in the financial sector caused by the 2008 global financial crises.

On average, stock markets in India have performed spectacularly after the Election results. There have been large swings particularly the day before and after the Elections.

The impact on the stock markets is not that significant when it comes to interim election results. Based on the past historical analysis, we can divide the impact of the Indian Elections on the economy into the following three categories.

Near the General Elections

During the days near the general election, the market will react to good and bad news. At this stage, the market looks for direction and clarity. Things are not certain at this stage regarding the economic policies of the new government.

Investors are not clear how the new government’s economic policies will impact on the industry. Due to the uncertainty, the stock market undergoes wide fluctuations. In general, the stock market maintains an upward trajectory near the general elections.

During the Election Day

The resulting day is considered a D-day for the stock market. There is still some indecision and uncertainty among the market. A mandate will provide direction to the market. And the market will have to wait to know the relationship between parties.

After the Election Results

The performance of the stock markets after the election results depends on the government’s ability to form a majority coalition in the government. The market generally behaves positively if the government is able to secure a majority.

How Investors Should Behave During the Elections 2019

With the Indian general elections a few days away, investors need to be cautious about what move they make.

According to the Presidential Election Cycle Theory, the year before the election is mostly the best performing year. While the theory was pertinent to the US stocks, it is valid to any democratic country including India.

Investors should not panic due to any Election Day related volatility. At this critical juncture, investors need to remain calm and take calculated risks.

National sentiment cannot be predicted and will remain unpredictable. Investors need to carefully study the fundamentals before deciding. Any uncertainty about government policy should not affect the trading decisions.

Investors should keep the portfolio diversified and avoid timing the investment to the election results. Due to the uncertain outcome of the elections results, it’s important that investors should take a cautious approach when it comes to investing in the economy.

In the event the economic policies are uncertain, the best approach is to invest for the long-term.

Investors are advised to include precious metals and gold stocks in the inventory to hedge against volatility. Due to the correction that is expected in the market, these investments will help in hedging against the losses.

Other Factors that Could Affect the Indian Stock Market

Apart from General Election results, a number of other factors can impact the Indian stock market. International events such as US-China trade dispute, Brexit, and oil prices can impact stock market prices in India.

Oil prices are of particular interest that could have a deep impact on the Indian stocks and economy. The rising oil prices could have an adverse effect on the current account deficits and fiscal deficits. This will have a spillover effect on investment and consumption.

Stock markets in India will unlikely to experience a reversal. Last year, the Indian market had surprised experts by gaining about 6.8 percent. In perspective, all the major Asian markets including Shanghai, Nikkei, and Hang Seng had lost ground in 2018 troubled by the US-China trade war.

While Indian stocks may struggle for a stable footing after the election results, the general consensus is that the market would be up by about 10 percent by the end of the year. Investors should have reasons to remain bullish about the stock market performance in 2018.

Views are strictly personal. This Interim Financial Results & News posts or updates includes forecasts, projections and other predictive statements that represent Vtrade's assumptions and expectations in light of currently available information. These forecasts, etc., are based on industry trends, circumstances involving companies and other factors, and they involve risks, variables and uncertainties. The Group’s actual performance results may differ from those projected in these Interim Financial Results. Consequently, no guarantee is presented or implied as to the accuracy of specific forecasts, projections or predictive statements contained herein. 

Declining Housing Demand - US Economy

How a Declining House Demand Will Affect the US Economy

House prices are still going strong in the US as compared to a decade ago.

Low unemployment levels are driving up the house prices, according to Noble Prize winner economist Robert Shiller. However, the rate of increase in the housing market has declined.

In February this year, the US housing market had slowed more than unexpected. The construction of homes had dropped to an all-time low. The prices of new houses fell 8.7 percent last month. This was the largest decline in new house construction in the past eight months.

So, how will the declining house prices affect the US economy?

Understanding the Effect of the Housing Sector on the US Economy

The housing construction sector is included in the investment side of the total GDP spending. The total investment in housing sector experienced cyclical swings. Although the housing market does not directly impact the GDP, it affects the market indirectly through consumption spending.

The drivers of the housing market include housing demand, consumer income, credit availability, employment levels, interest rates, and spending levels.

With high demand in the housing market, homeowners will be more confident about spending. They can avail mortgage loans by using their existing homes as a mortgage.

Strong demand in the housing market encourages individuals to purchase and build new homes. This leads to increased activity levels in the construction sector. Consequently, the demand for construction products such as steel, cement, wood, tiles, and others increases.

In short, an increase in the housing market has a positive effect on the country’s GDP.

The rising demand in homes between 2000 and 2007 correlated with an increase in consumer spending and corporate investment. However, after the financial crisis of 2008, consumer spending and corporate spending declined significantly.

Studies have found that changes in the housing demand relate to the changes in consumption spending in developed countries.

Low house demand is affected by a number of factors. Some of the factors that affect the health of the housing market include the following.

• Interest rates
• Employment levels
• Consumer confidence in the economy
• Income levels

The rising prices of homes leads to more borrowing. On the other hand, people will focus on repaying their mortgage in the event of declining house prices.

Lackluster demand in the housing sector also affects the manufacturing sector. Due to a reduced house demand, the demand for building materials, furniture items, and appliances have also declined. This means reduced employment in the manufacturing sector.

A Dialectic Effect of House Demand on the Economy

The housing market holds back economic recovery. Due to the rise in house prices, more people are renting apartments and condos instead of buying new houses. This is particularly the case in urban areas, especially in New York, San Francisco, California, and Washington DC.

Over the past decade, most Americans have desired to own homes and everyone from the construction sector to banks have tried to make this dream a reality. This, in turn, had a positive impact on the overall economy leading to increased employment levels, income, and GDP.

However, things are changing now.

The housing market has become dialectic with the average and low-income Americans renting homes, while high-income owners building homes in luxurious areas. The price of luxury homes has outperformed the main housing market in the past few months.

The demand for houses with in-home spas, swimming pools, and outdoor kitchens is not just local, but international as well. This has led to an increase of nearly 4.7 percent in house prices during the last quarter of 2018.

Still, the international demand for luxury houses in line with the mainstream market has declined this year. This has been mainly due to the economic uncertainty caused by rising oil prices, Brexit, and slowdown of the Chinese economy.

Despite the decrease in demand, luxury house owners have decided to hold on to the inventories. This has made luxury homeowners reluctant to make new purchases.

The number of new luxury homes for sale that are priced above $2 million has decreased.

Effect of Rising Interest Rates on the Housing Sector

Looking back at the historical figures, the housing permits have an impact on the US recession. A recession results if the number of new permits has fallen by over 20 percent. At the moment, the new permits have posted small but positive growth.

The good point about the US housing market is that the structural vulnerabilities in the household sector have largely been diminished. The consumer debt levels as a percentage of GDP have reduced significantly since the crisis.

In addition, the ratio between the cost of servicing the debt and disposable income has also improved.

The rising income rates as per the Fed’s commitment to policy normalization can create a dent in the market. This will lead to an increase in the mortgage cost and decrease in the housing investments.

The big question is whether the rates will increase significantly and affect investment in the sector. If the mortgage increases to the point that it affects the repaying ability of consumers, it can have a negative impact on the housing sector and the US economy.

Since most of the mortgages are on 30-year fixed terms, higher policy rates will not have an immediate impact on the house prices. A report by Morgan Stanley has predicted that a quarter percentage point increase in the interest rate will result in four basis point increase in the house prices.

While the share of the construction sector as a percentage of GDP had decreased over the year, it does have a heavy impact on the economy. Lackluster performance in the construction sector can become a drag to the US economy.

Looking forward, housing trends point to rising prices in 2019 and beyond. In fact, this is the best year to invest in a home. Investors who buy houses today will likely be treated to above average returns in the medium and long term.


Views are strictly personal. This Interim Financial Results & News posts or updates includes forecasts, projections and other predictive statements that represent Vtrade's assumptions and expectations in light of currently available information. These forecasts, etc., are based on industry trends, circumstances involving companies and other factors, and they involve risks, variables and uncertainties. The Group’s actual performance results may differ from those projected in these Interim Financial Results. Consequently, no guarantee is presented or implied as to the accuracy of specific forecasts, projections or predictive statements contained herein.