By Elton Gomes
The stock market, which can be a very volatile, is often affected by a range of economic and political factors. While several factors play a role in its rise and decline, a recent report in Live Mint taking into account the recent Karnataka elections argues that the Sensex rose when the BJP won majority seats in the elections.
The Narendra Modi led government’s promises of economic growth and stability seem to have transpired positively in the stock market. It appears that the triumvirate of political stability, structural reform, and an attack on corruption is attracting the Sensex towards the BJP-led NDA government.
Here’s what happened
Several articles reported that since the Modi government came into power, the Sensex has done substantially well as compared with its international peers. During the past four years, under the Modi government, the BSE Sensex managed to add 10,000 points. In doing so, the BSE breached levels of 30,000 for the first time due to government initiatives – demonetisation being one of them.
Although demonetisation saw the benchmark Sensex drop about 3%, the Sensex jumped 6000 points a year after demonetisation. A major reason for the same was the increase in investments in equities via mutual funds.
During the four years of the Narendra Modi-led NDA government, the market cap of the entire BSE increased by 73% – from Rs. 84 lakh crore in May 2014 to Rs. 145 lakh crore. A report in Live Mint mentioned that between 26 May 2014 and 23 May 2018, the benchmark Sensex rose to 38.95%, while Nifty increased to 41.73%.
Pramod Gubbi, managing director and head of equities, Ambit Capital said in an interview with Live Mint, “At the Nifty level, the market returns may seem unspectacular, but several stocks, especially in the small- and mid-cap space, have been multi-baggers in the four-year period.” The centre’s demonetization initiative might have been instrumental here as well as the move created sufficient liquidity, thereby driving domestic markets ahead.
Gautam Chhaochharia, head of India research, UBS group, spoke to Live Mint: “The markets have done well under Narendra Modi, as investors have been impressed with the reforms agenda and efforts to improve the macro stability on inflation and fiscal front.”
A recent report by PTI mentions that the Sensex has surged by over 41% during the four years of the BJP government – making investors richer by Rs 72 lakh crore. After the Narendra Modi-led government came to power, the BSE Sensex gained 10,207.99 points or 41.29 %. On January 29, 2018, the BSE blue-chip index touched a record high of 36,443.98. PTI further reported that the entire stock market has grown from over Rs 75 lakh crore to roughly more than Rs 147 lakh crore.
Why is this important
An upsurge in the stock exchange means that companies that are actively traded are performing well – which is always a sign of a flourishing economy. If the Sensex is looking up, so should the economy. As investors tend to invest in shares by examining the health of the stock market, an increase in the Sensex always spells good news for investors and the government alike.
Elton Gomes is a staff writer at Qrius.
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