Betting big on exit polls is risky: Investors have been stumped before

Photo: Kamlesh Pednekar
Investors have thrown their weight behind exit polls, predicting the NDA’s victory, with the benchmark indices logging record single-day gains of nearly 4 per cent. However, betting big based on exit polls is risky.  

In a note, Motilal Oswal Financial Services has highlighted how exit polls have been off the mark in two of the previous four occasions, catching many investors off guard. 

While Monday’s buying signals that investors have priced in a BJP victory, experts advise retail investors to wait till the final outcome. A look at what exit polls have predicted since 1999 and how markets have behaved 

1999 general elections

The exit polls had predicted a majority for the BJP-led NDA. The pollsters expected the Congress-led alliance to win 142 seats, and felt the NDA could get 321. However, the market response to this prediction was lukewarm, as the Sensex slipped 1 per cent following the exit polls. The exit polls were right in predicting the NDA would emerge the largest block. It managed to garner a tally of 296 seats but fell short of the 300-mark. After the results, the Sensex jumped nearly 6%. 

2004 general elections

 
Most exit polls predicted another term for the National Democratic Alliance. They forecasted the NDA to get 260 seats and the Congress-led UPA to pick up 181 seats. However, the actual results were a complete contrast to the exit polls. The UPA ended up with 222 seats, while the NDA got 189 seats. In a knee-jerk reaction, the Sensex declined over 5 per cent intra-day. Later, it managed to recoup losses to end flat. 

2009 general elections

 
The prospect of a hung Parliament had put investors on the tenterhooks. Exit polls pegged the NDA to get 185 seats and the UPA to get slightly above 198. The markets had reacted negatively to the exit polls, with the Sensex declining 1.22 per cent the next day. However, all those traders who had bet on the exit polls were in for a major surprise. The UPA got a stronger mandate as they won 262 seats. The markets turned euphoric with the Sensex getting locked at upper circuit, gaining 17 per cent — its biggest single-day gain to date .

2014 general elections

 
The exit polls were able to rightly predict a strong majority for the NDA. While the markets were already pricing in a Narendra Modi-led government at the Centre, the Sensex posted 1.36 per cent single-day gain after the exit polls. The final results showed that the NDA had raked in more than what the polls expected. The NDA got 336 seats, while the UPA fell short of getting even 100 seats. Following the results, the markets posted gained almost 1 per cent, as the market had partially factored in Modi’s win. 

2019 general elections

 

The benchmark indices have posted one of their biggest post-exit-poll gain buoyed by prediction that Modi government will retain power. The final results are due on Thursday. Experts caution that the markets will 
be volatile in the days ahead and advise investor to ‘wait and watch’. They say that if exit polls are right, the markets could consolidate its gains. But, if they are off the mark, a sharp correction could be on the cards.

* Average seats predicted | Source: Compiled by BS Research Bureau, MOFSL report for previous polls/outcome; Sensex movement used for market reaction


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