Trader's guide to India elections says it is time to buy equities

While PM Modi faces an uphill battle to sustain his party's majority in Lok Sabha, the past 6 elections show positive returns for Indian equities over the two years that straddle the vote

Indian stocks have been roughed up along with most markets in recent months, but there could soon be reason to cheer. National elections are due by 2019, and modern history shows that tends to be a good thing for investors.

While Prime Minister Narendra Modi faces an uphill battle to sustain his party’s majority in the key lower house of parliament, the past six elections show positive returns for Indian equities over the two years that straddle the vote — regardless of whether power changed hands.

The fiscal years prior to elections showed positive gains for the benchmark S&P BSE Sensex index in all but two of the past six ballots, and one of the loser years was 2008 — when markets round the world were upended by the global financial crisis.

Governments of course have plenty of incentive to boost growth in the run-up to elections, potentially feeding through to corporate earnings as well. Optimism about a new administration’s game plan could also help explain the history. Investors might hope for a repeat of the 2004 election when it comes to the impact on equities. The Sensex saw a 113 per cent advance over the two years through March 2005.