The Dynamic of Stock Market During the Third Quarter

By: Anisha Gupta

The Indian stock market in Q3 2024 saw sharp fluctuations driven by election-related uncertainty. While political events caused short-term volatility, seasoned investors focus on long-term growth, reflecting the strength of India's macroeconomic fundamentals, reforms, and investor confidence. Ultimately, political disruption rarely affects the underlying trajectory of a robust economy.

The third quarter of 2024 has been very volatile for the Indian stock market but has largely been mostly political uncertainty before general elections and worldwide economic factors. Elections, by their very nature, make investors fearful, but this year certainly was no exception. But largely, while all the media focuses on short-term volatility, the long-term prospects for the Indian economy look bright and robust, thanks to strong fundamentals and investor confidence. 

The Nifty 50 index marked a decent opening to the year. Even the index closed in January 2024 at 21,725.7. Momentum also built well into April when the Nifty touched 22,604.85, reflecting good homebound growth and investor sentiment. However, not so soon after the election cycle had set in, the market had its first slight decline in May, closing at 22,530.7, that small correction triggered by emerging uncertainties regarding election outcomes. Coming on hopes of positive policies now to flow from this election, Nifty rebounded sharply by June to 24,010.6 where many of the investors hoped that those policies were going to keep on coming and so they piled in. It was a political landscape that forced major swings seen during Q3. By July, the Nifty had climbed up to 24,951.15 due to predictions of a stable government. Uncertainty over a potential coalition government towards the end of August saw Nifty close at 25,235.9, as investors were wary of policy disruption and instability in the economy. 

While election-driven volatility was one factor behind the seesaw market, pressures from the global economy were also instrumental in causing these market gyrations. After all, India is among the world's largest importers of oil, making it starkly sensitive to price changes in this commodity, which throws costs haywire across each industry, whether transport or manufacturing. This only added further market uncertainty, especially in sectors like energy and transportation. Policies of the U.S. Federal Reserve also remained strict, with high-interest rate policies compelling capital outflows from emerging economies, including India. Investor optimism is fuelled by a new, apparently pro-business government that will continue with reforms in infrastructure, taxation, and digitalization. The reversal of the market showed that most of the volatility was due to near-term uncertainty, and not because of deep weaknesses in the economy. 

The three-month long-term volatility shook markets, but long-term investors focused on the good fundamentals of the Indian economy. It projected India's GDP growth for 2024 at 6.5%, attributing the current growth to consumer demand, production in industry, as well as foreign investment. It did control inflation pretty much at 5% levels, and the government was spending on infrastructure and technology ventures continued to be very helpful for lifting long-term economic growth. To be honest, one is very positive about three sectors IT, pharmaceutical, and renewable energy. These are going well in India and have been showing upward trends in the economy for a long. Sensex has had a steady return for ten years, with a CAGR of 11.6%. An indication that Indian capital markets show strength even in the wake of political and economic short-term uncertainty. 

The third quarter of 2024 will be a classic example that narrates the intrinsic instability of the Indian stock market arising from both political uncertainty and pressure from the global economy. However, as observed during post-election rallies, such short-term corrections in the market are inherently temporary. Near-term turbulence due to elections could not deter investors from reaffirming the long-term positive trajectory of the market, based on sound economic fundamentals and important reforms undertaken to further investor confidence. The underlying growth potential in the Indian economy continues to attract both domestic and international investors. The degree of volatility experienced in Q3 merely reflected temporary factors. It was not a reflection of the market's strength at a fundamental level.