Elections and stock prices

Macro-forecasting is the area where more effort is required

We have seen big election-related moves of the stock market in the past. But with the benefit of hindsight, the market’s forecast of future profit growth has been poor. This is part of a larger pattern, where the Indian stock market is often good at sizing up one company at a time, but fails to understand the macro forces that are shaping the entire country and influence all firms. Finance players need more macroeconomics and political science expertise. Election results may also be particularly important for ‘politically connected firms’ (PCFs).

In 2004, everyone had expected the NDA to be re-elected, but