Stock markets are more aligned to opinion polls than they are to economic data. The Sensex fell 0.8% after Q3 GDP data released on February 28 came in weaker than for Q2. But given that, two days before this, the Pew Research Center predicted the BJP was leading the polls, markets recovered quickly — they rose 0.65% the day of the Pew poll and a full 1.38% in the week after the poll.
Though election results don’t reverse market sentiments, they have a big short-term impact. In 2004, when the UPA formed the government with Left support, the markets collapsed 11%; in 2009, when the UPA won without the Left, markets celebrated with a 17% jump. In both years, though, the underlying sentiment never changed — in 2004, markets were feeling blue even before the elections and in 2009, they were feeling euphoric long before the elections.
Over the last one month this year, the Sensex has risen 5%, 2.3% over the last two and 1.5% over the last three. So, with the Election Commission declaring the poll schedule on Wednesday — the polls, to be held in nine phases, will begin on April 7 and conclude on May 12 — markets will likely continue their upward journey.
The exception to the rule, though, is politically sensitive stocks — Reliance Industries’ price, for instance, depends on whether the government raises gas prices or penalises it for ‘hoarding’ gas. For ONGC, hiking oil subsidies means it has to fork out more while decontrolling diesel prices lifts its stock. Tata Power’s fortunes, similarly, depend upon whether SEBs agree to pay it a compensatory tariff for its power plant in Gujarat.
FE has compiled a list of 27 such stocks, including those embroiled in CBI cases, and finds that while the Sensex rose 12.8% in the last year, these stocks fell 5.4%. Over UPA-2, these stocks rose 29.5% versus 159.7% for the Sensex. Their fortunes, which worsened over the last two years, could revive were the new government to take favourable policy decisions like those on gas pricing or cutting oil subsidies faster.