Fiscal policy clearly forms a huge interrelation with political changes within the financial markets. When uncertainty exists, these macro factors highlight risk and return factors that relate directly and indeterminately to investors and are central to the stock market: the budget 2024 and the US elections 2024.
Indian equities market – one of the biggest actors in global financial markets underwent a change soon after the Lok Sabha elections. Nifty and Sensex indices mobilized a 6 percent plus rally since Jun 4, the day of election results. In 2024, Nifty rose by more than 6%. The year 2024 was remarkable for Nifty as the stock exchange recorded a steep increase in relatively less time as compared to other years. 98 percent and Sensex by 5 percent.
Experts also found that the FDI in Indian pharmaceutical companies had increased by 38 percent in the last year, and the chemical industry recorded a growth of 8 percent. The average value of ΔM/M was 84 percent, which captured the market’s reaction to the election results. In turn, it can affect the dynamics of the market and progress or slow down the development of technologies.
The overall federal budget, its overheads, and, of course, the need to cover the budget deficit influences investors.
An operating budget directed at increasing the amount of the company’s money can positively impact the economy, hence creating bullish behavior in the market. On the other hand, a budget with an increased deficit, which does not come with clear growth strategies, also brings about bearish trends. They keenly analyze the direction of the government spending so as to be in a position to know the area that is likely to be greatly benefited or the one that is likely to be greatly impacted by the government’s change of spending.
The periods before and after elections can generally be considered rather unstable for many markets due to the potential nature of policy shifts. From past studies, it has been noted that markets tend to favor continuity in incumbent policies, though this may not be absolute. The preparation for an election produces speculative stocks and weakens the market position of liquidity and stock prices, hence affecting the investor’s decision-making.
"With the general elections behind us, market participants will focus on several critical factors in the coming months. Additionally, the Union Budget will be a major event, with expectations and reactions influencing market dynamics. The Reserve Bank of India's (RBI) stance on interest rates will also be pivotal," said Ajit Mishra - SVP, Research, Religare Broking Ltd.
Market players are eagerly monitoring various triggers as they look into the future over the next few months. These events do have the potential to significantly impact the market.
Because of its significant influence on the agricultural sector, as well as the wider economic well-being, the monsoon season progress is keenly observed in the market.”
“Domestically, the progress of the monsoon season will be closely monitored, as it significantly impacts the agricultural sector and overall economic health," Mishra said.
To be more precise, it is generally harmonized with what other central banks undertake globally, the Reserve Bank of India normally aligns with its monetary policies. Whether it will look forward to the US Fed to initiate first on interest rate cuts or it will act before the right time on the same matter is an anticipation wait. This is positive for the market and is expected to boost economic growth and has also triggered a wave of rate cuts.
The six-member Monetary Policy Committee of the Reserve Bank of India, which has its first meeting post-election, is underway and will continue until June 7, 2024.
Given the proposed Lok Sabha elections in April-May 2024, India presented a vote on account in February 2024. The first full emergency budget is expected in July 2024. It was pointed out that budgets have always been a major market signal, especially when participants focus on fiscal numbers, taxes, reforms, and the like. The next budget is expected to be more crucial with BJP lacking a clear mandate is a challenge.
Other vital influences motivating the operation of stock market performance include the upcoming US elections 2024. Especially, the US elections 2024 are expected to determine the future policies implemented in the largest economy of the globe. These three policy determinations, in particular, will go on to shape the movement of funds and the decisions of foreign investors in regard to emerging markets.
The specific pop stance held by the Federal Reserve towards inflation has been equally sceptical, especially where price increases are concerned since January have not been enough to justify a near term cut in rates. This will likely prove decisive in shaping the course of key economic data in the next few months – whether the Fed will stick with its policy of a persistent rise in interest rates in 2024 or will prefer to perform a rate cut.
“On the global stage, the interest rate environment in the United States will be a key area of attention. The US Federal Reserve's decisions on interest rates can have widespread implications for global liquidity and investment trends. Moreover, the upcoming general election in the US will add another layer of uncertainty and potential volatility to global markets," Mishra added.
Granting, a variety of industries have different manners of reacting to election results as well. For instance, shares in companies under the defense category will see their stock surge after there is an election of what is deemed as National Security for a government-friendly junta, while those under the renewable energy segment will do well in a green government regime. The statements provided during the campaigns may, therefore, be used as pointers to areas to focus on. It would also mean that long-term economic trends are considered more important than short-term political incidents.
It could be noted that, whereas the US elections in 2024 can largely influence the short-term volatility of the stock market, long-term trends in the economy may impact the stock market in the longer term. Porter categorizes forces into industry-specific and competitive forces, with the former in customer, bargaining, the threat of substitutes, the threat of new entrants, and the threat of suppliers categories, which are influenced by wider factors like inflation, interest rates, and health of the global economy, among others.
The big question is: Does Election Year really mean different investment strategies?
Smart stock traders or market analysts, in particular, could consider rebalancing their investments or using election years as a cushion against high risk and uncertainty. Some may play a fundamentally defensive strategy, buying stocks from sectors that are immune to the ravages of the vagaries in political events, while others may opt for an aggressive strategy, putting their money where they believe that their preferred political party will be after the election.
Thus, it is possible to conclude that some guidelines, however, are only some of the factors that determine the behavior of the main stock market trends and indexes. To make proper decisions investors have to think a lot about everything from economic conditions and international relations to financial reports and balance sheets. It is worth stating that, as always, the best approach remains a middle-ground and proper research.