Nifty 50 is up 1% this year so far; can it see a pre-election rally?

The timing and magnitude of potential rate cuts by the Fed remain uncertain, leaving questions about whether they will be modest or significant. Nevertheless, the indication that rate cuts are forthcoming still serves as a positive factor for the market, providing some clarity amidst the uncertainty.

A big event is approaching now – the General Elections 2024. A seven-phase election will start on April 19 and continue until June 1, with vote counting scheduled for June 4.

Also Read: Lok Sabha elections: India to go to polls starting 19 April

Experts say the next major trigger for the domestic market is the outcome of the General Elections 2024.

The Nifty 50 typically exhibits upward momentum in the months surrounding a general election, despite volatility in the market.

Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities underscored that over the last 40 years, India has witnessed 11 general elections. The average return given by the Sensex of the prior six months to the election outcome during all these elections has been 14.3 per cent.

Sheth further highlighted that in the last 25 years, there were five general elections and during these elections, the Sensex has always given positive returns. 

This time the election results will be announced on June 4, 2024, so if we take the prior six months, the period begins from December 5, 2023. 

During this period, the Sensex has yielded 5.28 per cent to date, so we are still way below the average returns that Sensex has delivered in the prior six-month period in an election year on the last 11 occasions, Sheth observed.

Also Read: Expert’s View: A 10-15% correction may be healthy; stick to high-quality private banks: Varun Fatehpuria

Sheth believes the movement of US bond yields will be a significant factor which will influence the domestic market.

“If the US Bond yield stays below 4.335 per cent levels, we may see further upside in the benchmark in the form of a pre-election rally,” said Sheth.

Also Read: Fed signals three rate cuts this year; how will it impact equities and gold? Experts weigh in

The rally may be led by the large-cap stocks here on as small-cap stocks have corrected about 10 per cent from their all-time highs and are in recovery mode.

“The large caps have not fully participated in the market uptrend up till now and going ahead, we feel the rally will be led by leading constituents of the benchmark indices the Nifty and the Sensex,” said Sheth.

Also Read: Indian stock market remains attractive, say experts, suggest stocks to buy for long term

This time around, the market seems to have largely factored in the likelihood of the incumbent government returning to power. Some experts believe the market may not see sharp up-moves as the outcome of the election may be priced in.

“It is pertinent to note that the victory of the BJP in the upcoming election is largely priced into the market already. Typically, market movements are driven by unforeseen developments rather than anticipated events already factored into prices. Consequently, expectations for a pre-election rally may be tempered. Instead, market behaviour is likely to be shaped by global events, as evidenced by the recent impact of the Fed statement on market sentiment,” said Sunil Damania, Chief Investment Officer at Mojo PMS.

“Drawing parallels with the market behaviour observed during the 2019 election year, we anticipate the market to remain within a narrow range with a downward bias. However, it’s essential to remain vigilant of evolving global dynamics, which could introduce unpredictability into market movements,” Damania added.

Also Read: Delayed rate cuts negative for Indian markets; investment opportunities galore in several sectors: Hemant Sood of Findoc

Kkunal V Parar, VP of Technical Research and Algo at Choice Broking pointed out that there is an expectation of positive momentum both leading up to and following the election results. However, he believes after the initial surge, the market may enter a phase of sideways movement lasting approximately six to nine months.

Parar observed that technically, the index is exhibiting an upward rising channel formation, indicating a positive trend, and trading in uncharted territory, which further reinforces this optimistic sentiment.

“A breakout of the flag formation on the weekly chart suggests a continuation pattern, supporting the likelihood of further upward movement, particularly leading up to the elections and extending for several months afterwards,” said Parar.

“The upside potential is projected to reach between 23,000-23,500, with strong support anticipated around the 21,100 mark. This analysis is based on the current market structure and prevailing trends, suggesting a cautiously optimistic outlook for the near to mid-term future,” Parar said.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 21 Mar 2024, 05:35 PM IST