The Lok Sabha elections have always caused panic in the Street, from foreign investor outflows to rising volatility. But the spike in market volatility seems to be the highlight this time around, like never before.
Since the beginning of phase 1 of the general election, India's stock volatility gauge has surged over 80%. The spike was due to the uncertainty in the election verdict resulting from a lower voter turnout.
Phase 6 had an all-India voter turnout of 59%, compared to Phase 5's turnout of 57.82%.
Here are the key market indicators, as well as how they performed on verdict day:
This spike is consistent with the India VIX's typical behavior before major events. However, compared to the last three election periods, the current VIX level is significantly lower than the historical trend, according to Vaibhav Porwal, co-founder of Dezerv.
Market volatility has fallen drastically during and after the election verdict.
Vaibhav Porwal highlighted that in the 12 days preceding the election results, the VIX fluctuated between 26 and 49 during the 2009, 2014, and 2019 election years. "As we approach the result day, we anticipate a further increase in the VIX, followed by a decline post-election, reflecting the patterns observed in previous election cycles," he said.
The benchmark indices have risen in all the election result outcomes since 2024, except for the 2019 verdict. In the 2009 verdict, the indices saw a huge spike, with Nifty and Nifty Bank surging 17.7% and 18.8%, respectively.
Public-sector enterprise companies are among the key players that will react to the election verdict, as the policy continuity will impact their operational performance in the quarters ahead.
The Nifty CPSE Index saw a maximum surge of 14% during the 2009 verdict, as well as a rise in the 2014 outcome.
Election day hasn't marked a significant shift in foreign inflows on a daily basis, as we need to monitor their trend over a longer duration. But both 2014 and 2019 saw an overseas inflow of $627.77 million and $206.66 million, respectively.
Furthermore, the market's total Nifty 50 Futures Open Interest value declined by Rs 6,630 crore at the end of May 30 to Rs 32,680 crore from Rs 39,310 crore a day earlier. Foreign investors led a significant portion of this decline, with the open interest value falling by Rs 8,530 crore.
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