Billions of FII dollars may chase Indian stocks in election season. Here’s why
election season. In all the last 5 election years, FII flows have been positive in the election quarter and, on an average, have improved in the next 3 months after the uncertainty eases.
The impact of this seasonal trend can be already felt on Dalal Street this year as well as FIIs have poured in about $3 billion already so far in March. On average, FII flows are stable to weak in the three quarters prior to the elections before the inflows begin.
If history repeats itself this time again, FII inflows may improve further and restrict downside pressure in case retail investors back out.
The analysis of the last 5 election years also shows that in the 3 months preceding the election results, Nifty has ended in the green zone on four occasions with an average upmove of 10.7%.
«The maximum positive move of 25% was observed in 2009 while a minimum positive move of 8% was observed in 2019. The index had closed in the red in 2004, down by 10%. However, it was followed by a massive recovery from June 2004 onwards,» said Neeraj Agarwal of JM Financial.
In all the last four Lok Sabha election years — 2019, 2014, 2009 and 2004, the market has consistently delivered over 12% returns in the following three to five years, irrespective of the election outcome.
The highest returns were observed between 2004 and 2009 when neither the BJP or Congress held a majority, according to analysis by Fisdom.
Also read | Goldilocks gone? Rs 40,000 crore FII sell-off in banks, other financial stocks
What else is driving FII flows?
FI
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