IMPACT OF 2014 GENERAL ELECTIONS ON THE INDIAN STOCK MARKET

P PAMEELA GEORGE

(LL.M BUSINESS LAW)

A0319314012

CHAPTER-1 INTRODUCTION

The impact of the 2014 elections though was predictable but became unbelievable with the changes it bought all over.

NSE Index which traded around 6000-6500 shot up to a high level and as on now is trading around 8125.

One of the highest record in India’s trading history.

Stock Market is always considered as the “Nations Financial Health” is the exact indicator.

Market index represents a varied spectrums of companies involved.

22nd August 2013 was one major impact where India witnessed prior the 2014 elections ,the Indian rupee fell against US dollar from Rs.63 to Rs.65 and again doomed into Rs.69 because of political instability.

NSE Index fell from 5770 to 4800 in one week. State Bank Of India fell from 2270 to 1800.

After the fall the NSE index touched to 9000 till now.

INTRODUCTION (Contd..)

• WHY SENSEX BEHAVING DIFFERENTLY ?

1.Uncertainty in the Stock Market.

2.Political issues

3.Economic variables

4.Interest rates

5.Local factors over global factors

CHAPTER- 2 WHAT IS STOCK MARKET

1. DEFINITION : The Securities Contract (Regulation) Act, 1956 [SCRA] defines Stock Exchange as “a

body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities.”

An organization or a market by which people can trade stocks.Also known as Equity Markets.

2. ORIGIN : Originated in the year 1792 at New York.In India stock exchanges were at Calcutta, Bangalore and CochinExisting stock exchanges are BSE & NSE.

CHAPTER-2 ( Contd..)

1. BSE (BOMBAY STOCK EXCHANGE) : Oldest stock exchange in Asia.Known as the “native shares & stock brokers association”Attained permanent authorization in 1956.

2. NSE (NATIONAL STOCK EXCHANGE) :Set up in June 1994 by a group of leading financial institutions.The domestic key investors included LIC, SBI, Stock holding corporation of

India ltd.The global investors include Gagil, FDI limited etc.

CHAPTER-2 (Contd..)

2.1TRADING MECHANISM IN INDIA : NSE considered to be one of the first stock exchange with fully based automated

screen based trading system.Fully automated and provides nation-wide order driven , screen based trading.

2.1.1 ADVANTAGES:

1) Improved operational efficiency.

2) Increased informational efficiency.

3) Market transparency

4) User friendly

5) Faster settlement of disputes

CHAPTER-2 (Contd..)

2.2 HOW STOCK WORKS :Early years trading was done on ground between the brokers on behalf of the

customers & in the present world its done electronically.

CHAPTER-2 (Contd..)

Recently WIPRO faced a succession issue.High authorities quitted and most of them still quitting.Stock price dropped to Rs.4000 all the way from Rs.4500.When a new report is published the stock market reacts accordingly.

2.3 HOW A STOCK IS TRADED:To start a trading account first you need to login.Place an orderThe following details gets generated :

1. Identity is revealed

CHAPTER-2 (Contd..)

2. Price intended to buy.

3. Number of shares.

2.4 VOLATILITY IN STOCK MARKET :Variation from the average value over a measurement period.Measured by standard deviation of logarithm.

2.5 FINANCIAL INSTRUMENTS :InvestmentDay trading : performed in two ways (a) Margin intraday square off (b) call &

put option.

CHAPTER-2 (Contd..)

2.6 INDICES :Number that measures the relative value of group of stocks.Calculated with reference to base period & based index value.Types :

1) BSE-tech index

2) BSE-PSU index

3) Bank index

4) Mid-cap/small-cap indexHow its used :

1) Information

CHAPTER-2(Contd..)

2) Bench marking

3) Trading

4) Portfolio-hedging

2.7 MARKET INDICATORS :Indicators which are used to project future financial and economic trends are known as Market indicators. The following are the indicators ;

5) Market Capitalisation

6) Price to earning ratio

7) Return on equity

8) Dividend yield

9) Price to book value

CHAPTER-2 (Contd..)

2.8 REVIEW OF RECENT POLICY DEVELOPMENTS :

The SEBI had initiated lot of new policies and programmes during the financial year 2008-09 which are as follows:

1) Shareholding in stock exchange

2) Securities lending and borrowing

3) Exit option to Regional Stock Exchange

4) Introduction of direct market access

5) Margining of institutional trade

6) Mandatory PAN requirement

7) Advt. by mutual funds

CHAPTER-2 (Contd..)

8) Application supported by blocked amount (ASBA)

9) Quarterly reporting by the foreign venture capital investors.

CHAPTER-3 FACTORS INFLUENCING STOCK MARKET

CHAPTER-3 FACTORS AFFECTING STOCK MARKET

Important requirement every investors should be alert about happenings in the market.

The factors affecting are as follows :

1) Foreign Institutional investors

2) Political state and economic development

3) Inflation

4) Oil ;

• Oil demand & supply

• Speculation

CHAPTER-3 FACTORS AFFECTING (Contd..)

• Uncertain political conditionsSome other factors that control , sway and stimulate markets :

1) World events

2) Economy

3) Scandals

CHAPTER-4 VOLATILITY ON INDIAN STOCK MARKET & FOREIGN INSTITUTIONAL INVESTORS.

General elections led to a spurt in stock market volatility.The FII’s pressurised on BSE so much it prompted to decline from 5900 on

22nd April to 4500 on May 18th .

4.1 MOVEMENT OF SENSEX & VOLATILITY IN STOCK MARKET.Elections held in 4 phases ,the possibility of winning chances of the non-

NDA government was predictable from second phase.Sensex kept declining till the end of May 2014

4.2 FOREIGN PORTFOLIO INVESTMENT & ITS INFLUENCE :Play a major role in the market. And after election played a major reaction.

CHAPTER-5 SITUATION OF INDIAN STOCK MARKET PRIOR TO 2014 ELECTIONS

the Indian general elections held the 16th lok sabha.Ran in nine stages starting from April 7th to 12th May 2014.Considered as one of the strongest elections.Indian economy and price issue was concentrated as the main issues in the

campaign.Former govt. criticised for the failure to control inflation

1. WHY MARKETS NEED NARENDRA MODI TO WIN :Policy clarityInvestment and infrastructure

CHAPTER-5 (Contd..)

fiscal deficitHelping wiselyModi’s government has brought a new change soon after the 2014

elections(recent policy).

CHAPTER-6 PERFORMANCE OF INDIAN STOCK MARKET AFTER 2014 GENERAL ELECTIONS

India had once become frustrated with the past corruptions and troubles by the former government.

Markets moved on with high expectation with the hope Mr.Narendra Modi would become the next prime minister.

BSE Sensex rose to 572.61 however it fell off to 460 points.On October 2014 first time in the India's election history after the 2009

election net investments into equities by domestic institutional investors, at $700m, had exceeded investments by the foreign institutional investors, at $150m – giving it an added boost.

CHAPTER-6 ( Contd..)

There was an expectation for a change of government at the centreNarendra Modi-led BJP government came to power The markets moved up. A flow chart has been given regarding the changes happened after the 2014

election.

FLOW CHART

Sensex hits record high of 21,483.74 (Dec 9-2013)

Modi and his party sweep to victory with a clear majority (May 16-2014)

Arun Jaitley India's finance minister

introduces the new budget.(July 10-2014)

Modi expands his new cabinet (Nov 9-2014)

investment by foreign investors exceeded. (Jan

10-15 )

India's and foreign countries trade relation uplifted from

pharmaceuticals to infrastructure(feb15-2015)

CHAPTER-6

1. BENEFITS EXPECTED FROM NAMO’s GOVERNMENT.Bollywood & Hollywood industriesSolar flare upRelation with US Defence

2. CHANGES MADE BY THE NAMO GOVERNMENT:Crore-jandhan account opened.$1 billion invested for “swachh bharath”

3. UPCOMING CHANGES :The following graph explains about the upcoming changes.

FLOW CHART

THE NEW POLICY

INFRASTRUCTURE PLUG AND PLAY FOREIGN INVESTORS PRIVATE EQUITY CORPORATE TAX

1) Infrastructure

2) Foreign investors

3) Private equity

4) Corporate tax

CHAPTER-7

The ‘Modi Effect’ brought in stability and provided positive direction to the stock markets of India.

HOW NEW GOVERNMENT AFFECTED OUR ECONOMY :

1) Encouraging foreign investors

2) GDP on rise

3) Inflation on a low-down

4) Sensex on all time high

5) Announcement of GST

6) Manufacturing sector boom

7) Bringing back black money

CHAPTER-7 (Contd..)

8) Bilateral diplomacy

9) Stability of Indian rupee

10) Infrastructural development

11) Stream-lining bureaucracy

12)Recasting judicial appointment

CHAPTER-8 CONCLUSION & SUGGESTION

Research was mainly to understand how elections can affect the share prices in the market changes in the sensex and so on.

Election results indicate that foreign institutional investment and other matters have significant positive impact.

Need of well managed policiesIndia is becoming a fast engine for future growthThe impact of elections in stock market is a topic worthy of analysis since

we have already witnessed through 2014 elections that the outcome of elections had a profound effect

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