As parties increase welfare promises amidst rising stakes, infrastructure spending may be sacrificed, potentially leading to market and economic repercussions.
The bugle for the 2023 state elections has been sounded as the Election Commission unveiled the schedule for five states on Monday. These elections are considered a prelude to the national elections in 2024.
Although state and national elections typically revolve around distinct issues, and the connection between state election outcomes and national election results is waning, the proximity of these elections to the Lok Sabha polls suggests that their results are likely to have a psychological impact on the general elections.
For instance, in December 2003, the BJP emerged victorious in the state elections of Rajasthan, Chhattisgarh, and Madhya Pradesh, only to be defeated in the subsequent 2004 general elections.
Similarly, in December 2018, the BJP lost these states to the Congress but rebounded in the 2019 general elections with a resounding victory.
State Election Results & Markets
Typically, state election results do not exert a significant influence on stock markets, given that state governments have limited jurisdiction over the country’s economic policies, primarily focusing on state budgets.
An examination of market behavior on the days of election results for these states over the past four electoral cycles spanning from 2003 to 2018 reveals no discernible pattern. The Sensex, for instance, closed with only marginal fluctuations even when the BJP faced defeat in all states in 2018. Similarly, in 2003, when the BJP secured all three states, the markets concluded relatively unchanged.
In 2008, the Congress managed to secure victory only in Rajasthan, yet the markets recorded a gain of 2.2%, possibly in anticipation of a potential BJP resurgence in the 2009 elections. Likewise, in 2013, when the BJP dominated in all these states, the markets responded positively, registering a 1.6% increase, possibly in anticipation of a Modi victory in 2014.
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