The stock market has been on a tear recently. It is tempting to conclude that this is based on the market’s expectation of a BJP victory in the current State elections. However, the evidence is not as clear cut as it seems at first sight. Although market participants probably do expect a BJP victory, much of the recent rally can be attributed to global factors, and not to expectations about the election outcome..
The NSE Nifty 50 Index fell to a low in late Dec, and since then it has recovered sharply and gained more than 1000 points, i.e. almost 13%, in about 10 weeks. This could be due to expectations of a victory for PM Modi and the BJP in the current State elections, which would be a market positive event, since it would strengthen the government’s hand and probably allow it to follow a reform agenda. An electoral defeat here will weaken the government substantially, since it would be interpreted as a popular repudiation of major government policies such as the note ban. The 13% run up in the Nifty seems to suggest an expectation that there will be a stock market friendly election outcome on Mar 11.