– Adv. Shahid Usman Ali
8 June 2024: In the financial world, elections have always been a source of both anticipation and anxiety. The outcome of an election can send shockwaves through the stock market, leading to volatility and substantial losses for investors. However, there are concerns that certain groups or agencies may exploit this chaos, capitalizing on bearish moves to further their own interests.
This troubling reality often leaves the general public bearing the brunt of losses, while a select few benefit from market manipulation and insider knowledge. This disparity highlights the urgent need for transparency and accountability in the relationship between elections and the stock market.
Weeks before election results, Prime Minister Narendra Modi, ex-Home Minister Amit Shah, and former Finance Minister Nirmala Sitharaman advised people to buy stocks, predicting market growth following a BJP-led NDA victory. Opposition leader Rahul Gandhi has called for a probe, labeling it “the biggest scam” in India’s stock market history. He alleges that this manipulation benefited certain “foreign investors,” leading to a crash in the Indian stock market. Exit polls were heavily promoted in the media, encouraging massive stock purchases, and when the actual results were revealed, investments worth billions of dollars were wiped out.
Markets are highly sensitive to political uncertainty, and investors often react swiftly to changes in leadership, policy proposals, or even rumors. This sensitivity can create opportunities for those with advanced knowledge or the ability to influence market sentiment. Insider trading, where individuals trade stocks based on non-public information, is both illegal and unethical, yet such practices can and do occur, especially around major political events like elections.
The recent call for a probe into influence peddling surrounding elections is a positive step. Government officials must be held accountable, and any hint of impropriety must be thoroughly investigated. The integrity of the electoral process, as well as the fairness and stability of financial markets, depends on it. Additionally, measures should be implemented to insulate the stock market from short-term political fluctuations. One approach could be to limit trading activity or impose temporary trading halts during periods of heightened volatility, preventing panic selling and irrational behavior driven by speculation or unfounded fears.
Greater transparency is also crucial to ensure all market participants have access to the same information simultaneously. Government officials should be prohibited from making stock market predictions that could influence financial markets. Any attempts to manipulate market sentiment or gain unfair advantages through privileged information must be met with swift and severe penalties. Elections should not be allowed to hijack the stock market or serve as a tool for enriching the well-connected at the public’s expense.
The influence of elections on the stock market is complex and contentious. While it is natural for investors to react to political developments, the integrity and stability of financial markets must be protected against manipulation and abuse.
