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Markets Fell due to Election Results: Should You Continue Your SIP or Accelerate Your Investments?
On June 4th, 2024, the Nifty dropped by 5.93%, while the Sensex declined by 5.74%. The markets were reacting to the unexpected outcome of the election results. The BJP failed to get a clear majority. Although the NDA coalition, led by the BJP, got a majority, the margin was far less than what the exit polls had anticipated.
As an investor, should you be worried or should you use such opportunities to buy the dip? In this article, we will discuss how markets have reacted adversely to election results and other events in the past, whether you should continue with your SIPs or accelerate your investments, and how markets have fared post these events.
Market Falls on Election Results Day
The day the election results were announced (4th June 2024), the Nifty 50 Index fell by 1,379 points or 5.93% and closed at 21,884. Similarly, the Sensex took a knock of 4,389 points or 5.74% and closed at 72,079. The Sensex and the Nifty indices experienced the biggest single-day fall in the last few years. The mid and small-cap indices fell even more sharply.
In May 2004, the election results differed from what the stock markets anticipated. The markets expected the NDA coalition, led by BJP, to win the Union Elections. However, contrary to market expectations, the UPA coalition, led by the Congress, won the elections. The Nifty fell by 12.24% on the results announcement day.
However, after a while, the market accepted the verdict and moved on. Here is how the market performed after the 2004 election results over the 5-year UPA term.
Sensex Performance After 2004 Election Results
Time Duration |
Percentage Returns |
1 month |
-10% |
3 months |
-5% |
6 months |
10% |
1 year |
19% |
5 years |
17% |
Note: The 5-year returns are annualised
The above table shows how even though the markets fell sharply on the election results day, over the next one and three months, the losses narrowed. In six months, the markets recouped all the losses and were up by 10%. Over one year, the market returns were a good 19%, and over five years, the annualised returns were a good 17%.
Should You Start an SIP on Election Results Day?
As per Value Research Online data, if an investor had started a SIP on 13th May 2004 in the Sensex, they would have earned an 18.1% CAGR over 5 years. Thus, even though the market may react negatively in the short term, over the long term, the fundamentals of the economy kick in accompanied by sustainable growth. Below is the data on how a SIP started on an election results day performed for the next five years. They considered the data for five Union Elections held between 1999 and 2019.
Table: Performance of an Sip Started on Election Results Day Over Five Years*
SIP Start Date |
Returns |
6th October 1999 |
16.1% |
13th May 2004 |
18.1% |
16th May 2009 |
13.0% |
16th May 2014 |
11.4% |
23rd May 2019 |
16.8% |
Source: Value Research Online
The above table shows if an investor started a SIP (Systematic Investment Plan) in the Sensex 30 Index on any of the above Union Election results dates, they would have earned double-digit annualised returns on all occasions. The results are irrespective of whether the results were as per market expectation or not. The best returns (18.1%) have come from the SIP started on 13th May 2004, when the markets fell sharply due to the unexpected loss of the NDA coalition. While the above study does accord enough importance to the SIP Start date, we do believe that in the long journey of SIP investment, timing the start of an SIP is insignificant. The importance of disciplined and consistent investing is key to success while investing through the SIP mode.
Market Performance After One-Day Sharp Falls
As discussed earlier, the Nifty fell 5.93% on 4th June 2024. Let us see how the Nifty Index has performed over the next one year after a single-day fall of 5% or more.
Date |
One Day Fall % |
Returns After One Year (%) |
23 March 2020 |
-12.98% |
94.67% |
17 May 2004 |
-12.24% |
43.35% |
24 October 2008 |
-12.20% |
93.38% |
21 January 2008 |
-8.70% |
-46.31% |
12 March 2020 |
-8.30% |
56.73% |
14 May 2004 |
-7.87% |
25.65% |
16 Mar 2020 |
-7.61% |
62.12% |
4 April 2000 |
-6.95% |
-20.41% |
18 May 2006 |
-6.77% |
24.36% |
11 November 2008 |
-6.66% |
70.28% |
10 October 2008 |
-6.65% |
50.77% |
7 January 2009 |
-6.18% |
80.22% |
The above table shows how, on 10 out of 12 occasions, when the Nifty had a big single-day fall, the returns ranged between 24% to 94% after one year. These are excellent returns. Only on two occasions, the returns were negative. This signifies an important aspect of investing behaviour. A fall in the market often triggers panic of selling, which results in investors withdrawing their funds at a loss.
However, those who demonstrate an investment behaviour that is guided by a strong investing process, are the ones who derive maximum benefit from a situation like this. In the long-term investing journey of maybe 15 years, an investor can potentially see a minimum of 3 election cycles, a few global events, and some economic swings that could result in volatility. But this should not deter him from the path of his investing goals. In fact, by staying disciplined and goal-focused, market volatility can be used to your advantage.
Should You Buy the DIP?
Union Elections are a regular phenomenon, once every five years. If the Government is not able to complete the entire five-year term, for whatever reason, elections may happen even before five years. So, during your long-term investing journey, you will come across multiple elections. Whenever the election results are announced, there will be heightened volatility before, during, and after the event.
If the election outcome is not as expected, the markets may fall sharply in the short term. However, as the past data shows, with time, the markets will accept the results, make a bottom, recover the losses, and eventually, go on to make new highs.
So, you should continue with your SIPs as it is, before, during, and after elections. If the results are contrary to market expectations and if there is a dip, you may use it as an opportunity to deploy some additional money.
Apart from election results, from time to time, the market may see sharp falls due to other events. As the past data shows, over a period of time, markets will find a bottom, start the recovery process, recoup the losses, and scale new highs.
In a growing economy like India, where markets are expected to do well in the long run, any sharp dips or corrections may be used as acceleration opportunities for your investments.
Buying the DIP and Stay the Course
One of Warren Buffett's famous quotes is: "Be fearful when others are greedy, and be greedy when others are fearful." When markets experience big falls, either a single day or over a short period, that is when most people are most fearful. If you can stay focused on the purpose of your investments, and stay the course despite any adverse market movement, the market will reward you handsomely in the longer term.
Your Investing Experts
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