Business cycles · India · 2024
Why Indian Shares Fell on 4 June 2024, the Lok Sabha Results Day
Why the Nifty fell 5.93% on 4 June 2024 as Lok Sabha results came in, why a result can surprise markets, and how prices recovered by 7 June.
By Vimista EditorialPublished 8 min read
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The governing alliance won enough seats to form the government, yet Indian shares fell sharply as the votes were counted. On 4 June 2024, the Stock market indexAn index is a single number that tracks the prices of a chosen group of shares. It is used to describe how a market, or part of it, has moved.View topic and related stories, an index tracking 50 large companies listed on the National Stock Exchange (NSE), ended the day 5.93% lower.
Why would a winning result bring a market fall? Before counting began, exit polls had suggested a much larger victory, and share prices had risen. The result forced investors to reconsider what they had expected. That gap between expectation and outcome is what makes this week useful to understand: a piece of news can sound positive on its own and still disappoint buyers who had already paid for something better.
What was counted, and what the market had been told
India’s general election covered 543 Lok Sabha constituencies across seven phases. Counting was scheduled for 4 June, with trends and results published as the count progressed. A party needs 272 seats for a majority in the lower house of Parliament; without enough seats of its own, it needs support from other parties to form the government.
After polling ended on 1 June, exit polls offered an early picture. These are surveys of people after they have voted, so they estimate a result rather than establish it. Business Standard reviewed 12 polls: all forecast a victory for the National Democratic Alliance (NDA), led by the Bharatiya Janata Party (BJP). Even the lowest forecast gave the alliance 316 seats, and two estimated about 400.
The following Monday, 3 June, the Nifty rose 3.25%, closing at 23,263.90. Business Standard linked the rally to the exit polls. Before a single counted result was available, shares were already trading at higher prices.
That matters because someone buying at those prices was buying after the optimism had arrived. A victory alone might no longer be enough to justify what they had paid; its size mattered too.
The counting day: open, low and close
When counting began on 4 June, the result taking shape differed from that optimistic picture. The Nifty opened a little below its previous close and fell further as early trends arrived.
At its lowest point, it was about 8.5% below the previous day’s close. It recovered some ground before finishing at 21,884.50, down 5.93%. The Sensex, the other main Indian share-market index, closed 5.74% lower. Someone watching at the day’s worst moment therefore saw a steeper fall than someone checking only the closing figure. Both describe the day, but they measure different moments.
An index brings the prices of a group of shares into one number, with some companies carrying more weight than others. An index fall does not mean every share fell by the same amount. On 4 June, the differences were substantial:
| Group of shares tracked | Fall on 4 June |
|---|---|
| Nifty 50: 50 large companies | 5.93% |
| Nifty Bank: banking shares | 7.95% |
| Nifty Midcap 100: medium-sized companies | 7.88% |
| Nifty Smallcap 100: smaller companies | 8.23% |
| Nifty PSU Bank: mostly state-owned banks | 15.14% |
Business Standard also reported falls of between 6% and 15% in a dozen large shares, including NTPC, SBI, Power Grid, L&T and Reliance Industries. The headline index gave a broad picture, while the experience of a particular shareholder depended on what they held. These figures show where prices fell; they do not establish why each investor sold.
There was also a change in how much movement traders expected next. Volatility index (India VIX)A volatility index, such as NSE's India VIX, is derived from Nifty option prices. It shows how much movement in the Nifty the market expects over the next 30 days; it does not predict direction.View topic and related stories rose from 20.94 before counting day to 26.75 at its close, after reaching 31.71 during the session. It uses the prices of Nifty options, contracts giving buyers the right to buy or sell at an agreed level, to estimate expected market movement over the next 30 calendar days. It shows how much movement the market expects, not which way. A higher reading can accompany uncertainty without predicting another fall.
Why a result can be decisive and still surprise
By the morning of 5 June, all results had been declared. The BJP had won 240 seats, below the 272 needed for a majority on its own, while the NDA had enough seats to form the government. The BJP had won 303 seats in 2019; this time it would need its alliance partners’ support.
The surprise was less about who could form the government and more about the margin of victory. The alliance finished below even the lowest of those 12 exit-poll forecasts. Business Standard put the polls’ expectation for the BJP alone at about 325 seats, well above its actual 240.
This is how Market expectations and surprisesShare prices usually reflect what investors broadly expect. A known outcome can still move prices if it differs from those expectations, so the surprise often matters more than the news itself.View topic and related stories enter share prices. Buyers consider what a business might earn in the future, and what could help or hinder it. When an outcome is described as “priced in”, it means buyers and sellers have already taken that expectation into account.
Suppose investors buy shares expecting a large majority to make government policy decisions easier. A result requiring more negotiation with coalition partners could make some of them less willing to pay the earlier price. The winning alliance can stay the same while their assessment changes. The rise before counting and fall during it fit this explanation, though the records cannot tell us what every investor expected.
Nor did a smaller majority have only one possible meaning. Before the result, a broker quoted by Business Standard associated a single-party majority with stability and policy continuity. In the Reserve Bank of India’s later Monetary Policy Committee (MPC) minutes, one member interpreted the result as suggesting political stability and policy continuity without disruptive changes. More negotiation could be a concern for some investors and a reason to expect fewer major changes for others. These were interpretations, rather than measurements of what caused the trades.
The distinction between a business and its share price helps here. A lower share price need not mean its profits have suddenly fallen by the same amount. NSE’s daily files showed the Nifty’s Price-to-earnings ratioThe P/E ratio is a share price divided by the company's profit per share. It shows how much investors pay for each rupee of yearly profit, and it is not a payback period.View topic and related stories, which measures how many rupees buyers paid for each rupee of the index companies’ yearly profit, falling from 22.13 to 20.81. Its decline was roughly in line with the index fall, consistent with investors paying less for existing earnings rather than the companies suddenly earning much less.
The recovery by 7 June
The lower prices did not last through the week. On 5 June, the Nifty rose 3.36% and India VIX fell to 18.89. By Friday, 7 June, the Nifty closed at 23,290.15, slightly above its pre-result close, while VIX had dropped to 16.88, below its pre-result level.
Other news was arriving alongside the election developments. On 7 June, the RBI’s MPC kept the policy repo rate, the rate at which the RBI lends to banks, at 6.50% by a 4–2 vote, and projected real economic growth of 7.2% for 2024–25. Business Standard linked that day’s rally to bank shares after the policy announcement and expectations of coalition stability. That reporting offers context, but the timing cannot establish how much each development contributed to the recovery.
To see what the fall and recovery meant in rupees, imagine ₹1,00,000 in a fund that followed the Nifty’s price changes exactly. This simplified example leaves out dividends, costs and taxes. A 5.93% fall would reduce it to about ₹94,070.
Getting back to ₹1,00,000 would then require more than a 5.93% gain. The missing ₹5,930 is about 6.3% of the smaller amount left. A Percentage loss and the gain needed to recoverA fall of a given percentage needs a larger percentage rise to return to the starting value. A 50 percent fall needs a 100 percent gain, for example.View topic and related stories, which is why the percentage needed to recover is larger than the percentage lost.
The Nifty gained about 6.4% between the closes on 4 and 7 June, enough to recover its counting-day loss. That comparison concerns the index’s closing prices. An investor’s own return would depend on their holdings and when they bought or sold; this quick recovery does not establish how another fall would unfold.
What it meant for Indian savers
For someone holding shares or mutual funds, this week shows why a market headline needs two pieces of context: what is being measured, and over which dates. A fund holding mostly state-owned banks could have experienced a very different fall from one following the Nifty. And a comparison ending on counting day would show a loss that had disappeared from the Nifty’s closing level by Friday.
Monthly investment figures answer a different question. The Association of Mutual Funds in India (AMFI) reported record June contributions of ₹21,262 crore through systematic investment plans (SIPs), arrangements for investing regularly in mutual funds. Equity funds received a record ₹40,608 crore more than investors withdrew, with sector and theme funds receiving the largest share, helped by new launches.
Those totals describe money entering funds over the month. They cannot tell us whether people bought or sold because of the fall on 4 June. A strong month for fund inflows and a sharp day of falling prices can both be true.
What to remember
- Compare the news with the expectation behind the price. An alliance can win and still fall short of what buyers had anticipated. The same reasoning helps explain why apparently good company news can disappoint a market.
- Separate the business from the price paid for it. Shares can fall because buyers reassess the future or become willing to pay less for existing earnings. A price fall alone does not tell you which has happened.
- Read a market number in context. Check which shares it tracks, whether it describes a day’s low or its close, and the dates being compared. VIX adds information about expected movement, without telling you its direction.
- A recovery starts from the amount left. Recovering a percentage loss requires a larger percentage gain. June’s recovery illustrates the arithmetic, without promising a similar recovery next time.
Sources
Show 14 sources
- Election Commission of India, “General Elections 2024 - Dissemination of Counting Day Trends and Results”, Press Note No. ECI/PN/113/2024, 1 June 2024
- Election Commission of India, “An Atlas: Lok Sabha Elections 2024”, pp. 26-27 (basic HTML version)
- National Stock Exchange of India, “ind_close_all_03062024.csv” (daily index closing file, 3 June 2024)
- National Stock Exchange of India, “ind_close_all_04062024.csv” (daily index closing file, 4 June 2024)
- National Stock Exchange of India, “ind_close_all_05062024.csv” (daily index closing file, 5 June 2024)
- National Stock Exchange of India, “ind_close_all_07062024.csv” (daily index closing file, 7 June 2024)
- National Stock Exchange of India, “About India VIX” (computation methodology)
- Reserve Bank of India, “Monetary Policy Statement, 2024-25: Resolution of the Monetary Policy Committee, June 5 to 7, 2024”, 7 June 2024
- Reserve Bank of India, “Minutes of the Monetary Policy Committee Meeting, June 5 to 7, 2024”, 21 June 2024
- Association of Mutual Funds in India, “AMFI Monthly Note, June 2024”
- DD News, “Lok Sabha Results 2024: NDA secures absolute majority with BJP emerging single largest party with 240 seats”, 5 June 2024
- Business Standard, “Sensex, Nifty at record highs after exit polls; portfolio strategy here”, 3 June 2024
- Business Standard, “Stock Markets, June 4: Sensex crashes 4,390 pts, Nifty gives up 22k on sub-par BJP tally in LS polls”, 4 June 2024
- Business Standard, “Sensex up 1,600 pts, Nifty near 23,300: Why markets surged after RBI policy”, 7 June 2024