Capital Market Reactions to the Indian Lok Sabha Elections – An Analysis of 2014, 2019 and 2024

Abstract

This paper investigates the impact of the Indian Lok Sabha elections on the capital market, focusing on the three electoral cycles i.e. 2014, 2019, and 2024. The research study employed the market model and event study methodology to analyze the complete dynamics between electoral outcomes, market sentiment, and investor behavior by using Average Abnormal Returns (AAR). The analysis was based on data available from the National Stock Exchange (NSE) and with the NIFTY 50 index as the benchmark of the market. All companies listed on NSE sectoral indices are included in the analysis. The results highlight significant market reactions during election periods, characterized by heightened volatility and sectoral shifts. The study reveals positive abnormal returns during the 2014 elections, negative abnormal returns during the 2019 elections reflecting the cautious investor sentiment despite political continuity, and mixed outcomes in 2024 highlighting changing investor expectations and uncertainties. The findings underscore the dynamic nature of financial markets during elections, offering actionable insights for investors and policymakers. Future research could expand on these findings by integrating global political dynamics and advanced econometric models.