A clear mandate to the Congress in the 15th Lok Sabha elections saw the Sensex shooting up 17% in a single day, but the next question is will the benchmark index break another record set in 1991, when it soared by 35% in three months after the announcement of results.

Incidentally, the Congress had emerged as the single largest party in 1991 also, bagging 232 seats out of the total 521 seats for which the elections were held. In the just concluded general elections the Congress-led alliance won 262 seats out of the total 543.

An ETIG analysis shows that the market dipped on announcement of poll results on three out of five previous elections. The two occasions when there was a positive reaction to election results were in 1996 when the Sensex rose 2% in the next trading day, and in 1999 when the index went up marginally by 0.4%. With the Congress-led alliance close to a simple majority in the just concluded elections, expectations of a stable government led to Monday’s unprecedented response.

The study reveals that all the three occasions out of the last five elections when a stable government was formed, Sensex generated positive returns in the first six months.

In contrast, the two occasions(1996 and 1998 elections) when the government was relatively unstable, the market tanked by 20-25% in the first six months.

An interesting fact that comes out of the analysis is that out of the five occasions, the market has seen a clear bull rally or correction in the first two months only once. On all other occasions, it has been a gradual movement over the six-month period. This has certainly changed with the sharp rise in Sensex on Monday.

source: Economictimes

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