The stock market became a matter of controversy as the general election drew to an end. After most exit polls showed a strong BJP victory, Indian stocks hit all-time highs. They plummeted on June 4, the day of the results, when it was apparent that BJP would not get even simple majority.
Is there a chance that the ups and downs in the stock market caused by prior and post exit poll results hurt small investors but favoured “suspicious foreign investors” according to Congress?
On May 31 when exit polls were released before the last day of voting, aggregate value of trades doubled. The following day after exit polls trading closed for business at Nifty-50 of National Stock Exchange which read 3% higher.
As per June 4th, the largest party in India’s lower house is below 272 (majority mark). However, NDA secured only 292 seats—well short of most predictions from several exit-polls. Nifty50 plunged nearly six percent (Chart 1). This was its sharpest fall since March 23rd this year when it dived by thirteen percent right after India announced nationwide lockdown to contain COVID-19 spread. That drop on June 4 wiped out investor wealth worth ₹30.9 lakh crore.
Chart 1 shows movements in NSE Nifty-50 before election result.
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Queering the pitch was Union Home Minister Amit Shah’s statement on May 13th: “I suggest that you buy [shares] before June 4th. It will shoot up”. On May 19th, Prime Minister Narendra Modi said that during the week when results are expected, stock market would “touch such heights” as if technicians “would be tired of action”[sic].
Data reveal that foreign portfolio investors’ (FPI) involvement led to increased share-trading activities in stock markets on May 31. Total trade value swelled from ₹1.1 lakh crore to ₹2.3 lakh crore on May 31, as shown in Chart 2. On this day, FPIs emerged as the largest buyers, acquiring shares worth ₹95,500 crore (41.8% of total). These accounted for 41 percentage of all shares sold.
Chart 2 shows total traded value in Rs. crore.
FPIs were net sellers almost every other day till May 31 when they turned net buyers (₹1,541 crore). They also bought on June 3 (a day prior to results) worth ₹6,617 crore. However, they sold on June 4 (₹12,511 crore).
In summary, FPIs were net purchasers during the days that indexes rose (May 31st and June 3rd) and net sellers when it crashed (June 4th) (Chart 3). Mutual funds also kept buying for most of these days except those where markets crashed. For example, mutual funds were net sellers at a tune of ₹6,249 crore on June 4th alone.
The daily net turnover (shares bought minus shares sold) by different types of investors such as retail investors, FPIs and mutual funds from May 2 to June 5 are shown on charts 3 a, b and c.
Conversely, the retail investors were buyers on June 4 with net flows of ₹21,179 crore. Did they try to buy the dip when there was a market crash? The same retailers turned sellers on May 31 and June 3 when stock prices surged. Were they booking profits on these days? Retailers sold stocks worth ₹8,588 crore on June 3 – an event which contrasted sharply with FPIs and mutual funds who were investing in stocks that day.
Contrastingly, it is not possible to argue like Congress did that retail investors had huge losses as compared to other categories based on the contrasting behavior of retail investors against other categories of investors including their net turnover on June 4.
