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.
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What else is driving FII flows?
FIIs began 2024 by selling Indian stocks worth over $3 billion but the exodus stopped in February when modest buying was noticed. The resilience shown by domestic investors, led by retail, has ensured that every dip is being bought on Dalal Street.
Analysts say FIIs have been forced to buy the same shares which they sold at higher prices, which is a losing game.
“Large fund houses have started the exercise of considering reallocation of capital to India. Seeing the proactiveness of the Indian government in easing the mode of carrying business operations, compliances, and quickly updating the regulations will surely make India is a global hub for carrying out businesses in all spheres,” said Manoj Purohit of BDO India.
On the regulatory front, he said announcements such as removal of UAE from the grey list, SEBI’s consultation paper for easing UBO disclosures’ norms for regulated FPIs have been the major catalysts to put India on the forefront for potential long term investments for the foreign fraternity.
Dr. V K Vijayakumar of Geojit Financial Services points out that the decline in US bond yields has halted the switch from equity to bonds.
“The Indian economy is growing at better-than-expected rates (FY24 GDP growth is likely to be around 7.6%, far ahead of other large economies) and this will have a positive impact on corporate earnings and consequently on the stock market. These positive developments and the sustained flow of funds into the market – both directly and through institutions- can keep the market resilient,” he said.
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)