Buoyed by Modi win in Uttar Pradesh, markets rallied 1.7 per cent on Tuesday, the biggest single-day gain after a major state election result since at least 2004. Typically, markets don’t react much to state election results, Jefferies shows. The average one-day movement seen after results of previous three elections in six states shows a fall of 0.02 per cent. The average one-month and three-month movements after results again show a fall of 2 and 0.5 per cent, respectively. In other words, state election results typically don’t shake the markets like general elections do. Then why the rise after Uttar Pradesh (UP) verdict? “There has not been a state election, at least in the last couple of decades, with as many far-reaching implications as the UP election,” says Nilesh Jasani of Jefferies.
Elections can have can have a “consistent, positive influence” on the market if they lead to “a material improvement in consumer and investor confidence leading to higher discretionary (non-compulsory) spending and capital expenditure” or lead to “a new policy reform cycle with positive implications for corporate profits”.
It remains to be seen if any of these materialise, and justify market exuberance.
