Election Results & Stock Market Returns

Investors are spooked by the uncertainty arising from various state elections and general elections in next five months. There is a common belief that if ruling party comes to power it will be good for the stock market. Any adverse result may put stock market into the tailspin. In today’s post, we are trying to analyse from two angles, one from what historic data tells us starting from 1980s and another from what common sense tells us. Let’s find more details about it.

History Speaks

Currently, most brokerage houses are busy in analyzing or predicting election outcome. While it is true that over short to medium term, an election outcome may swing the market moods. However over longer term, the data suggests otherwise. Let’s have a look at sensex returns over the tenures of various ruling parties.

Governing Party- LeaderYearDurationSensex
Janata Party- Morarji Desai19794 Months15.8%
Janata Party- Charan Singh1979-801 Year5.4%
Congress- Indira Gandhi1980-844 Years 3 Months20.2%
Congress- Rajiv Gandhi1984-895 Years20.8%
Janata Dal- V.P.Singh1989-9011 Months73.4%
Janata Dal- Chandrasekhar1990-918 Months6.1%
Congress- P.V. Narasimha Rao1991-964 Years 11 Months24.4%
NDA – Atal Bihari Vajpayee199613 Days2.3%
United Front –
H.D. Deve Gowda
1996-9711 Months3.1%
United Front – I.K Gujral1997-9810 Months1.3%
NDA – Atal Bihari Vajpaee1998-046 Years 2 Months3.3%
UPA – Manmohan Singh2004-1410 Years17.6%
NDA – Narendra Modi2014-Now4 Years 6 Months10.7%

There are many valuable insights from above table as follows:

  • During Congress Rule, Sensex has generated rather good returns contrary to popular belief now-a-days. 
  • Highest Return came during Janata Dal ruling largely due to global factors.
  • Worst return over a reasonably longer period (except I.K Gujral’s 10 months rule) was observed during the tenure of Atal Bihari Vajpayee (3.3% over 6 years).
  • In terms of longevity, Manmohan Singh hold the record for being PM of India for massive 10 years. Sensex achieved more than avergae return of 17.6% during his tenure. (Long term average of Sensex lies around 14%). If Narendra Modi becomes PM once again and remains in power for another 5 years, he will be the third person to remain PM for a decade after Jawaharlal Nehru & Manmohan Singh.
  • During recent ruling of Narendra Modi, sensex has given a mix bag of performance which is 10.6%
  • Clearly, there is no single favorite party for the market based in historical data. In fact, historical data points towards lesser returns during Non-Congress rule which is exact opposite of what people may think at the moment. So do you pray for Congress or BJP to win this election?

Now, if we go down into these data, we realize that market returns have actually followed general emerging market trend rather than sticking to any particular political party. During Vajpayee government, due to dot com bubble, globally market tanked which diminished returns. Similarly, during Manmohan Singh’s government, emerging equities saw one of the best run till the crash of 2008. Only to recover back in 2009. Had Manmohan Singh Government finished their term in 2008, returns won’t look so good. 

What does Common Sense says?

Government indeed has an important role to play for any country’s economic prosperity. They decide the rules of the game for doing business in the country. So ideally, government should have a major role in sensex returns? Well, the answer based on common sense is both Yes & No.

Yes because, the result of Government’s action has a bearing on country’s economy. However the catch is that it may or may not reflect in immediate performance. It may take another decade for full benefit to be visible and by that time, someone else may be ruling the country. For example, when Narasimha Rao government opened up Indian economy to global economy back in 1992, its true benefit was only realized between 2003-2007. This era saw massive equity performance globally. Sensex jumped from 3500 odd levels to 20,000 level. A massive 5 fold increase at index level. But during this time, it was Manmohan Singh’s Government which realized these benefits. 

No because, emerging markets tend to follow same pattern together. The role of foreign equity investment still makes or breaks the fortunes of our market. So even if Government is pushing good reforms, if crude oil is high & rupee is plunging due to global factors beyond India’s control, foreign money will change directions. This will swing sensex wildly towards each end of spectrum. 

No, because, India as an emerging economy will continue to grow bigger & bigger thanks to our population. Neither Government nor foreign investors can alter the course of our population pattern which is set to surpass China by 2025. Large parts of our population (around 65%) is under 35 years of age. Around 50% of our population is hardly 25 years old. This means lot of youth are ready for work in their prime age. This results in huge demographic advantage for India. Foreign money will keep on chasing India due to this demographic advantage. There will be lot of buyers in Indian economy, similarly there will be lot of people willing to work at globally competitive wages. This is a perfect recipe for high growth. 


ace reader must have got a sense of what drives our stock market. The single biggest reason is our demographics. Another reason for market’s apathy towards political parties is because so far all ruling parties have more or less governed in the same manner. There is no distinct difference in patterns. For example, if a government decides to shun away all foreign investments and feed India only on domestic produce or choose to severe ties with United State resulting in sanctions from US. These kind of steps will be very big to create a ripple impact on our economy. As of now, all governments have done more or less the same job by doing 5 or 6 out of 10 things right. If we get a Government doing 9 out of 10 things correct or 2 out of 10 things correct, the impact will be surely visible on our economy and thus stock market. 

Assuming, our future governments keep on doing reasonably ok job or even better, we believe the future of Indian economy is bright for atleast another three decades till the time our demographic advantage turns into a disadvantage. In the future, we will be having more older than young people which may slow down our economy but that is something too much far away down the line. For ace investor like you, it is good time to use this correction & build long term equity positions to reap the benefits which foreign investors are already enjoying. Why should foreign investors have all the fun? 🙂

If you like this article, please feel free to share using social media buttons at the bottom of this page.