Are India's Stock Market Misreading The Election Trends?

Over the past two weeks or so, Satta Bazar (illegal betting market) trends have been influencing India's stock market moves greatly. Ahead of the first phase of polling in March, as per the Satta Bazar, the BJP alone was winning 338 seats. But as the fifth phase of polling approaches, the Satta Bazar has reduced the BJP's seat tally to 290 indicating that the Modi wave that got the BJP to power, was ebbing. Even at 290, the BJP is still above the required majority mark of 272 but the stock market investors have started imagining various scenarios, including Prime Minister Narendra Modi losing his position and sharp depreciation in the Indian Rupee, if BJP's seat tally fell even slightly short of the 272 mark. This anticipation of bookies and the punters of lower seats to BJP is based on the fact that the voter turnout in sheer percentage terms was lower in 2024 than in 2019. Such guesswork has led to a near 1000 points fall in benchmark index Nifty from its all-time high of 22794 that it touched on May 3. In just 10 days, the Nifty index touched a low of 21,821 on May 13. Index apart, several stocks of PSU companies are down by over 20 per cent. Also, the share price of Adani Enterprises, the group perceived to be close to PM Modi, is down more than 10 per cent in the past few days. But are stock markets and the bookies misreading the trends? What really is cooking in the markets and Satta Bazar for such stark pessimism?

Manipulating The Numbers Game
Going by the past two elections and the recently concluded state elections of 2023, where the BJP won three out of four assembly elections, there is no doubt that the masses in India are more swayed by PM Modi than the likes of Rahul Gandhi and regional parties, which have been rejected by the majority of the public for election after elections in the past 10 years. What then is causing fear and panic this time in the markets?

A lower voter turnout in the first four phases of national elections is the only reasoning that the speculators are flaunting to spoil the sentiments since that indicates that PM Modi and the BJP would get a lower vote share from the Hindu commodity voters, who are perceived to not turn up in numbers higher than in 2019. While surmise for Congress and other parties is that they will gain vote share this time since their voter base, which is largely perceived to be Muslim community, never abandons polls and turns out in large numbers.

Such an assumption alone, like above, is causing anxiety among large stock market investors and speculators, who are cutting down their positions, thereby causing the Nifty index and stocks to fall. Both foreign investors and India's HNIs are scenarios for Nifty fall and Rupee depreciation in case of lower seats to BJP. If BJP wins 300 seats then Modi would remain India's PM and markets would rally but if the party fell short of the majority mark and had to take support from allies, then PM Modi would be sidelined and markets and the rupee would see a sharp fall, is the assumption.

But what are the fearmongers and manipulators hiding? Consider this:
Contrary to the popular perception that voter turnabout is low in 2024, number crunching shows that it is actually the highest-ever voter turnout in India's election history since independence. Going by the trend so far in the first four phases, 63 crore voters will be casting their votes in 2024 compared to 60 crore voters in 2019, says Ajay Bagga, a financial market expert and former fund manager. The number could actually be higher since the last three phases of polling is in the states that are a BJP stronghold. In 2019, a mere 37 per cent vote share got BJP 303 seats. With a number of voters likely to go up, BJP's vote share too will jump, resulting in more number of seats. From this stems PM Modi's confidence of higher seats.

In percentage terms, the voter turnout this time looks lower than in 2019 since the number of voters have gone up. In 2019, there were 91 crore eligible voters but comparatively, there are 98 crore eligible voters in 2024. So naturally, in percentage terms, the voter turnout seems lower this time, compared to 2019. Then, 67 per cent of voters had turned out to cast their votes, which is likely to fall to around 63 per cent or 64 per cent. But in sheer numbers, the voters turning up to cast their votes is likely to go up at least by three to four crore than in 2019.

Hence, going by the same assumption that a lower voter turnout hurts PM Modi and the BJP, if a higher number of voters come out to vote, it will lead to a landslide victory for the ruling party and the PM.

"On this massive scale of 98 crores eligible voters, and probable casting of 63 crore votes , no sample survey can claim to be accurate . Add to that the impact of social media , which is manipulated with automated bots and tool kits. This makes it very tough to correctly gauge the mood and pulse, especially when there is a lack of an overarching wave. There is a lot of research that shows voter turnout is not an accurate predictor of the outcome. In that perspective, claims and counterclaims of landslides , based on voting percentages are fallacious arguments," said Bagga.

How Does Manipulation Work?
Sources say, that in the Satta Bazar, whatever loss the bookies or the punters were suffering by shorting the BJP's seat tally, they were covering it by going short in the stock markets. It is a perfect hedge for large punters close to the opposition parties, since they have won in the stock markets by spoiling the sentiments, which has led to a nearly 1000 points fall in the Nifty index and several other stocks even when global markets are stable and breaking up on the long side. After the fifth phase of polling, when voting for nearly 450 out of 538 seats is done on May 20, the Satta Bazar trends may reverse as those who had shorted BJP will come back to cover looking at the number of voter turnout and not percentage terms.

Market positioning
"Markets are extremely oversold based on the sentiment that is reflected in the positions of foreign portfolio investors. But the markets may be forming a double bottom near 21,800, which is indicating a sharp rally ahead and Nifty likely to retest the highs of 22800 before the elections," said Rohit Srivasta,  Founder, Strike Money Analytics & Indiacharts.

Foreign portfolio investors are holding net index short positions to the tune of 158874 contracts in the index derivatives segment in Indian stock markets as on May 13, as per the data adjusted for the recent revision of lot sizes for the index contracts by NSE. Domestic traders, which is mainly High Net Worth players, who since COVID bottom in the markets have got the market moves correct, are holding net long positions to the tune of 230074 contracts. During the COVID lows in April 2020, the domestic traders were holding net long positions in the index to the tune of 288132. Even recently, when the Nifty index hit a bottom in October 2023 and rallied sharply from there, the domestic punters were holding net long positions to the tune of 292822 contracts. Shows which way the winds are blowing.

FPI Scenarios
Sources say that leading FPIs and foreign banks have worked out a few scenarios for their clients as per which the markets could crash and the rupee could depreciate of BJP falls short of the 272 majority mark. In that case, Modi may not remain India's PM and many others would come forward to stake their claim. If the BJP wins at least 290 seats, which the Satta Bazar is predicting, the markets may not fall much but a rally if off the table as the opposition would be stronger. Anything above 300 seats for the BJP will led to a bull run in the markets till the budget session, which would be in less than a couple of months post-election.