As the election campaign gains momentum, the stock market starts setting its political expectations. In the current scenario, the guiding factor is the ruling alliance’s targeted number of seats. The market will tend to think of that target as a benchmark even while it recognises that the current representation of the ruling alliance is by itself a formidable number. Even reaching the current number would count for a good showing in the general elections.
But, the ruling alliance has raised the bar too high for itself with the “Ab ki baar, 400 paar” slogan. This slogan has the effect of setting the market expectations higher than the present strength in the Lok Sabha. This clearly is a problem in the making. It has to do with aggressive expectation setting, which in any context is a mug’s game for the markets. Very aggressive expectations, even if met, will not create a WOW factor. The market will simply consider the achievement as a discounted event and move on. But, in case there is even a repeat of the last election’s performance, the markets will compare with the expectations set at 400, and react with disappointment. Any number lower than the present strength in the Lok Sabha will be met with a sharp negative market reaction. And, an upset result will be an absolute shocker and can cause a steep fall on results day.
Clearly, the expectation setting for this election are more aligned to create disappointment than to create a positive surprise. What remains to be seen is how the market handles itself in the phase of polling until the exit poll results are out.
