How the 2024 Lok Sabha Election Results Could Affect NRI Finances?

India’s Election Commission released the official results of the 2024 Lok Sabha elections on June 4, 2024. The National Democratic Alliance (NDA) secured 294 seats, surpassing the 272-seat threshold for a majority but falling short of expectations. This outcome reverberated not only among India’s 141.72 crore residents but also among the 3.21 crore Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and Persons of Indian Origin (PIOs) worldwide.

As the globe observed the world’s largest democracy in action, the results triggered significant economic shifts in India and considerably impacted NRIs, both financially and politically. This article examines the financial implications of the 2024 Lok Sabha election results for NRIs globally.

Market Sentiment Before the Election:

Prior to the June 4, 2024 results, Indian markets were notably optimistic. Exit polls predicted a landslide victory for the BJP-led NDA, fostering a bullish sentiment. On June 3, the Sensex surged 3.55% to a record 76,013.09 points, while the Nifty 50 gained 3.58%, closing at 23,329.30 points. This rally stemmed from confidence in the incumbent government’s continued economic reforms and growth trajectory.

June 4 Market Decline:

Contrary to pre-election optimism, the actual results led to a sharp market downturn. The Sensex fell 4,389.73 points (5.74%) to 72,079.05, and the Nifty dropped 1,379.40 points (5.93%) to 21,884.50. This marked Dalal Street’s worst crash in four years, triggered by the NDA falling short of the anticipated ‘400 paar’ mark.

This unexpected outcome shocked the market, reflecting investor anxiety. Foreign Institutional Investors (FIIs) were particularly reactive, withdrawing Rs 12,436 crore, while Domestic Institutional Investors (DIIs) sold shares worth Rs 3,319 crore. The massive FII withdrawal underscores the global attention on Indian elections.

NRI Reactions to Market Fall:

NRI communities had diverse reactions, ranging from maintaining current investments to temporarily exiting the market. Some suggested shifting to fundamentally strong stocks less dependent on election outcomes.

NRI Predicament: The immediate impact on NRIs centered on volatility and adjustments in investment portfolios. The sharp Sensex and Nifty drops affected equity investments, mutual funds, and other financial instruments held by NRIs. Small-cap and mid-cap segments, where many retail investors including NRIs are heavily invested, were particularly affected.

Despite initial shock, analysts predict recovery based on long-term economic policies expected under the new government. NRIs are advised to maintain a long-term perspective, focusing on India’s economic stability and growth potential rather than short-term fluctuations.

NRI Voting Process: About 118,000 NRIs registered to vote in the 2024 Lok Sabha elections, with 12,000 eligible voters, mainly from Kerala. The logistical challenges of returning to India to vote meant many NRIs didn’t directly participate. However, substantial market reactions post-results suggest close monitoring by NRIs and global investors.

Economic Policies and Market Reaction:

The BJP government, known for pro-business policies, had implemented key economic reforms in previous terms. Anticipation of continued BJP leadership was expected to maintain this momentum. However, market reaction to actual results indicates a more complex scenario. Investors banking on a decisive victory were caught off-guard, leading to a sell-off.

Recent updates reveal that political leaders have approached SEBI to investigate the impact of exit polls on the June 3, 2024 stock market rally. This highlights financial markets’ sensitivity to political outcomes and the need for NRI vigilance and adaptability.

Long-term Outlook:

NRIs significantly contribute to India’s economy through remittances, investments, and consumption. Post-election uncertainty may influence their investment decisions. Government policies affecting NRIs, such as taxation, property ownership, and ease of doing business, will be crucial in shaping their confidence.

As post-election dust settles, NRIs should stay informed about policy changes and new economic measures. Emphasis on long-term goals and diversification remains critical. NRIs should consider consulting financial advisors to navigate the volatile post-election landscape effectively.

Conclusion

The 2024 Lok Sabha election results have undeniably impacted Indian financial markets, with significant implications for NRIs. The initial market crash, marking Dalal Street’s worst performance in four years, highlighted investors’ volatility and sensitivity to political developments. The substantial FII sell-off compared to DIIs’ more measured approach reflects global scrutiny of India’s political landscape.

FAQs’

Q1. How did the 2024 Lok Sabha election results impact Indian stock markets?

Ans- The election results caused a big drop in the stock markets. Both the Sensex and Nifty had their worst declines in four years because the NDA did not perform as well as expected.

Q2. Why did the markets respond negatively to the election results?

Ans- Markets were optimistic because exit polls predicted a big win for the NDA. When the actual results did not match these predictions, it led to uncertainty and a quick sell-off by investors, especially by Foreign Institutional Investors (FIIs).

Q3. How were NRI investments affected?

Ans- NRI investments, especially in stocks and mutual funds, saw a lot of volatility. The steep decline in the Sensex and Nifty caused many NRIs to reconsider their investment strategies.

Q4. How did FIIs respond to the election results?

Ans- FIIs withdrew a large amount of money, about Rs 12,436 crore, due to concerns about political stability and economic policies after the election.

Q5. What should NRIs think about when reacting to market changes after the election?

Ans- NRIs should keep a long-term view and focus on the strength of India’s economy. Getting advice from financial advisors and diversifying investments can help manage risks from market fluctuations.

Q6. How many NRIs were registered to vote in the 2024 elections, and how many voted?

Ans- About 118,000 NRIs registered to vote, but only around 12,000 could vote due to difficulties in returning to India, especially those from Kerala.

Q7. What policies could affect NRI finances after the 2024 elections?

Ans- Taxation, property ownership, and business policies are important. The government’s stance on these issues will greatly affect NRI investments.

Q8. Why should NRIs be cautious about exit polls?

Ans- Exit polls can create false expectations, as seen in the 2024 elections. The real results were different, leading to market volatility. NRIs should be careful not to base financial decisions solely on exit polls.

Q9. How can NRIs prepare for economic changes in India after the election?

Ans- NRIs should stay updated on new government policies and economic measures. Diversifying portfolios and consulting financial advisors can help deal with political and economic changes.

Q10. What is the long-term outlook for NRIs after the 2024 election?

Ans- While the short-term reaction was negative, the long-term outlook depends on government policies. NRIs should focus on India’s overall economic prospects and stay informed about any policy changes.