‘Sensex can potentially swing 5% to minus 40% after poll result’

livemint.com:

MUMBAI : Investors could witness the Sensex rising by around 10% in the run-up to the general elections in 2024 in anticipation of a decisive win for the Bharatiya Janata Party (BJP) led government and could swing in a +5% to – 40% wide range, depending upon the outcome of the polls. This is the nub of a research report dated 3 September by global brokerage Morgan Stanley. The Sensex closed at 65387.16 on 1 September and a 10% base case implies 71926 through May, assuming the election dates are not advanced.

Advancing election date could concentrate the market move into a shorter period. The report titled “One Billion Voters : Will they please the market?," notes, “If we are right about pre-election market move, then depending on what the election result is, we believe the market has the potential to swing between +5% and -40% - a wide range underpinning how important the elections could be to market in short run. The wild swing has historical precede-nce though we think it could be more acute this time around." A 40% fall means Sensex could tumble to 43155 level from the high.

For example, in 2004 when election res-ults were against what market was pricing in (the then NDA government lost) the Sensex fell 17% in a single trading session. It further says that “incumbency can be a positive if voters are feeling prosperous. The challenge is that prosperity differs across voting cohorts.