Historic Market Trends Reveal Underperformance in Leap Years

2024 marks a leap year, and it follows a trend from the 2008 market crash to the 2020 COVID-19 pandemic crash. Additionally, both the United States and India are set to hold elections in 2024.

Historic Market Trends Reveal Underperformance in Leap Years

How Leap Years Have Shaped the Indian Stock Market

Leap years are special years that occur once every four years, when an extra day is added to the calendar to keep it in sync with the Earth’s orbit around the sun. While leap years may seem like a trivial adjustment, they have been associated with some of the most significant events and trends in the history of the Indian stock market.

The Indian stock market, which consists of two major exchanges, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), has witnessed remarkable growth and development since its inception. However, it has also faced various challenges and crises, especially during leap years, that have tested its resilience and performance.

In this article, we will explore some of the notable historical occurrences in the Indian stock market during leap years, and how they have influenced the market’s volatility and performance.

The Early Years: 1984-2000

The Indian stock market has shown various trends and events during leap years throughout its history. Here’s an outline of significant historical occurrences in Indian stock markets during leap years:

  • 1984: On February 6, 1984, the BSE Sensex, the benchmark index of the BSE, closed at 322.94, marking a significant milestone in the early years of the Indian stock market. The Sensex, which was launched in 1986, is a weighted average of 30 of the largest and most actively traded stocks on the BSE.
  • 1988: The BSE Sensex hit 1,000 points for the first time on July 25, 1990, with the high being reached at 1,003.60. This was a remarkable achievement for the Indian stock market, which had started from a base value of 100 in 1978-79.
  • 1992: April 29, 1992, saw a substantial crash in the Indian stock market, with the Sensex recording a staggering 12.77% drop, marking one of the most severe crashes in Indian market history. The crash was triggered by the exposure of a massive securities scam, involving fraudulent transactions and manipulation of stock prices by a broker named Harshad Mehta.
  • 1996: The National Stock Exchange (NSE) was established on November 3, 1992 and commenced operations in 1994. By 1996, NSE became the leading stock exchange in India in terms of market turnover. The NSE introduced the Nifty 50, the benchmark index of the NSE, which is a weighted average of 50 of the largest and most liquid stocks on the NSE.
  • 2000: The technology bubble burst, causing a significant global stock market downturn. India was not immune to this event, and the Indian stock market experienced its impact as well. The Sensex and the Nifty both reached their all-time highs in February 2000, before plunging by more than 50% by September 2001.
  • 2004: Leap Year – The Indian stock market witnessed volatility with major events such as the Indian general elections, changes in government policies, and global economic conditions impacting market performance. On May 17, 2004, the Sensex and the Nifty both tumbled by more than 15%, as the market reacted negatively to the unexpected outcome of the elections, which resulted in a coalition government led by the Congress party.
  • 2008: The global financial crisis had a substantial effect on the Indian stock market during this leap year, causing heightened volatility and market downturns. The Sensex and the Nifty both reached their all-time highs in January 2008, before plummeting by more than 60% by October 2008, as the global economy faced a severe recession and a credit crunch.
  • 2012: Despite being a leap year, 2012 did not experience any significant market crashes or volatile events. It was a relatively stable period for the Indian stock market, which recovered from the previous slump and posted modest gains. The Sensex and the Nifty both ended the year with about 25% returns, as the market was supported by positive domestic and global factors, such as policy reforms, lower inflation, and improved investor sentiment.
  • 2016: The Indian stock market faced challenges amid global economic uncertainties and domestic policy changes, causing fluctuations and volatility in the market. The Sensex and the Nifty both reached new highs in September 2016, before declining by more than 10% by December 2016, as the market was affected by events such as the Brexit referendum, the US presidential election, and the demonetization of high-value currency notes by the Indian government.
  • 2020: The outbreak of the COVID-19 pandemic led to unprecedented market turbulence, significant downturns, and extreme volatility in the Indian stock market during this leap year. The Sensex and the Nifty both reached new highs in January 2020, before crashing by more than 40% by March 2020, as the pandemic disrupted the global economy and triggered a lockdown in India. The market then staged a remarkable recovery, as the Sensex and the Nifty both ended the year with about 15% returns, as the market was boosted by factors such as fiscal and monetary stimulus, vaccine development, and corporate earnings.

These leap years were associated with various economic, political, and global events that impacted the Indian stock market’s volatility and performance.

What to Expect in 2024? Will it be a Bloodbath??

Let’s delve into the insights of 2024, An In-depth Analysis Backed by Historical Data.

In 2024, the leap year coincides with major elections in the United States and India.

Historically, market trends indicate periods of volatility. During such market conditions, adept use of Options trading can prove beneficial.

Impact of Elections on Indian Stock Markets

This research delves into the intricate connection between Indian elections and the performance of the stock market, recognizing the susceptibility of stock prices to political events. Elections, as significant national occurrences, introduce uncertainties that can wield considerable influence on market dynamics. Despite enduring positive long-term market trends, the study identifies noteworthy fluctuations during specific temporal phases.

Key Findings:

  1. Pre-Election Periods: Leading up to general elections, stock markets exhibit heightened volatility owing to uncertainties. However, historical data underscores robust market performance, with average returns of 29.1% one year before elections and 6% in the month preceding the event.
  2. Historical Overview (1989-2019):
  • 1989 (Coalition Era): Political turmoil and the formation of the National Front coalition led to market volatility.
  • 1991 (Congress Era): Economic liberalization under PM PV Narasimha Rao instilled market confidence and facilitated recovery.
  • 1996-1998 (Unstable Coalition Government): Political unrest and external economic pressures resulted in reduced market confidence and economic downturn.
  • 1999 (NDA in Power): NDA’s victory stabilized the market, initiated sectoral reforms, and witnessed a GDP growth rate of 6-7%. Global events, however, led to a significant market downturn.
  • 2004 (UPA Era): A sharp market decline post-UPA victory was succeeded by a robust bull market until 2007, impacted by the global financial crisis.
  • 2009 (UPA’s Second Term): UPA’s return saw a 17% market gain, but scams and policy uncertainties affected investor confidence.
  • 2014 (NDA’s Return – Modi Wave): BJP’s victory reduced volatility, supported by expectations of economic reforms.
  • 2019 (BJP Continues in Power): Market upswing with expectations of sustained economic reforms, constrained by global trade tensions.
  1. Outlook for 2024 General Elections:
  • Speculations regarding the 2024 general elections influencing the market due to unified opposition against the BJP.
  • Coalition governance enables consensus-driven decisions but may limit economic growth compared to other countries.
  • India’s long-term real GDP growth potential projected at 6.0%-6.5%, suggesting continued double-digit nominal returns.
  • Essential advice for long-term investors emphasizes considering India for investment opportunities.
  1. Market Insights:
  • Between 1980 and 2023, India underwent 11 government changes, with coalition governance eight times.
  • Since 2014, the BJP’s clear majority contributed to an average real GDP growth of 6.2% and positive Sensex performance.
  • Speculations about the 2024 general elections influencing the market due to a unified opposition against the BJP.
  • Long-term investors are advised to consider India for investment, anticipating sustained double-digit nominal returns.

How Elections effect the US market

Despite the apparent divergence in fiscal policies between the main U.S. political parties, empirical data indicates that the party affiliation of the president has limited, enduring impact on market performance.

Historical analysis reveals that even with an opposition-controlled Congress, which complicates the implementation of a president’s agenda, market reactions mirror those under a unified government. The examined data suggests that election outcomes may influence market dynamics, but the specific partisan control of the executive and legislative branches might not wield substantial significance.

This challenges the conventional wisdom that anticipates market shifts based on party affiliations and underscores the complex interplay of various factors shaping financial markets.

Ultimately, the nuanced relationship between political landscapes and market responses highlights the need for a more comprehensive understanding of the multifaceted forces influencing economic outcomes.

Leap years are special years that have a history of influencing the Indian stock market’s trends and events. While leap years may not have a direct causal relationship with market volatility, they have coincided with some of the most significant events and occurrences in the history of the Indian stock market.

I hope you enjoyed reading this article and learned something new about the Indian stock market and leap years. 😊

NEXT: A Beginner’s Guide to Trading: Strategy 2024

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