Another bloodbath on D-Street: Is low voter turnout to blame?

Thursday saw another blood bath on Dalal Street.

The Sensex lost over 1,000 points, while the Nifty was down by nearly 350 points.

The development comes on the heels of the stock market consistently dropping over the past few trading days and in the backdrop of the ongoing Lok Sabha polls.

But is there a connection between the two?

Have reports of poor voter turnout in the early phases of voting signalled concerns about the National Democratic Alliance’s (NDA) and the electoral prospects of Prime Minister Narendra Modi’s Bharatiya Janata Party?

Let’s take a closer look:

Bears rule on D-Street

The India VIX (“volatility index”) is often referred to as the “fear gauge” for the country’s stock markets.

It is a barometer for market volatility based on equity option prices. This month, India VIX marked its longest streak of increases since March 2020.

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Until Tuesday, the index had gone up for 9 consecutive sessions.

From hitting a record low only two weeks ago, it is now nearing its highest closing since early 2023. Such spikes in the VIX often indicate investor uncertainty and a bearish outlook in the short term.

Even the benchmark indices in Indian stock market have been closing in the red. The 30-share Sensex, in the three trading days from Friday last week to Tuesday, shed over 1,000 points. The broader Nifty 50 index registered a drop of almost 1 per cent on Tuesday and is heading towards its lowest close since the elections began on 19 April.

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Thursday itself witnessed investors’ wealth fall by Rs 7.34 lakh, while the market capitalisation of BSE-listed companies eroded by Rs 7,34,513.48 crore.

This after the market cap of BSE-listed firms reached an all-time peak of Rs 4,08,49,767.90 crore on 2 May.

This decline coincides with the electoral uncertainties fueled by lower-than-expected voter turnout, which, some believe, may dampen a decisive victory for Modi and the NDA.

Low turnout affecting market confidence

Speculation regarding the implications of voter turnout on electoral results has been a key driver of market sentiments, according to several media reports and experts. Initial reports indicated a decrease in voter turnout compared to previous elections.

The voter turnout for the first two phases of the 2024 Lok Sabha elections was reported at 66.1 per cent and 66.7 per cent, respectively. This is lower than the voter turnout for the same phases in the 2019 elections, where the turnout in the first phase was 69.4 per cent and 69.2 per cent.

The low turnout has prompted fears of a less emphatic performance by the ruling BJP. Such a scenario is viewed as a destabilising factor for the markets. After all, the market anticipates challenges to the continuity of economic reforms and policy initiatives in case the BJP comes to power with fewer seats.

Beyond the ballot data

However, the actual situation may be less dire than it appears. SBI Research has countered the prevailing narrative by pointing out that the number of absolute voters has increased, despite the lower turnout percentage. What that means is that while percentage of total registered voters casting their ballots has gone down, the overall number of people voting this election has gone up.

Another important factor to note is that apart from the low voter turnout and the speculation over what that could mean, there are other factors behind the dip in the markets.

Indian stocks have outperformed regional peers for an extended period, and the recent downturn may simply reflect a market correction following this phase of growth.

Additionally, global economic factors have also played a significant role. Foreign Institutional Investors (FIIs) have offloaded Indian stocks worth Rs 5,525 crore in early May, influenced by rising US bond yields and adjustments in the timeline for anticipated rate cuts.

Furthermore, the quarterly earnings reports for the March quarter have largely met expectations. There have been no significant positive surprises. That could have potentially contributed to the bearish outlook.

In a nutshell…

The reports around voter turnout and its impact on market stability is compelling.

However, it is important to recognise the various other factors at play. Indian financial markets are currently navigating through an intersection of domestic political uncertainties and global economic shifts. As such, investors and market analysts must consider a broad spectrum of influences.

As the election progresses towards its conclusion on 4 June, the market’s focus will likely adjust based on emerging political and economic data.

“Markets buckled under relentless selling pressure as investors turned risk averse in the ongoing poll season and further lightened their equity exposure to avoid being caught off guard. As the election season is heating up, investors are trimming their equity exposure at a faster pace, which can be seen from the drubbing that mid and small-caps received,” said Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd.