What Does the Data Say About Trading Around the Elections Results? That Somebody Certainly Made Big Money
Debashis Basu  and  Vijay NS 14 June 2024
There have been a lot of allegations about who made money on the stock market with specific knowledge about the election results. While a variety of allegations have been flung around, a look at both sale and purchase data tells an intriguing story, with different conclusions. There are clear indications about concerted trading, which may be based on specific information, but the culprits may be different from what we have heard and would need a deeper investigation to unravel. 
So let’s look at how things unfolded.  On Saturday, 1st June, all television channels began to broadcast exit polls predicting a sweeping victory for the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA). Several predicted that the BJP-led alliance would get nearly 400 seats or more. Investors love the Narendra Modi-led government and so the market opened 3% higher on Monday in anticipation of a resounding BJP victory and remained at that level through the day. It closed 3.4% higher over Friday. 
However, the exit polls turned out be a sham. The actual results gave a disastrous 240 seats to BJP, well below the simple majority mark and it would have to depend on parties outside the NDA to form government. As the results unfolded, the benchmark Nifty index dropped nearly 9% reflecting shocked selling. This precipitous fall in prices was accompanied by huge trading volumes.
Since the Prime Minister and Home Minister had earlier urged investors to buy stocks, this wild swing in stock prices attracted political attention. The Congress Party has alleged that there was a scam; that exit poll results which predicted BJP sweep were manipulated and even demanded a Joint Parliamentary Committee (JPC) investigation. Congress leader Rahul Gandhi held a press conference where he alleged that shady foreign investors made money from these price swings, causing Indian investors to lose trillions of rupees.
The chairman of Professionals’ Congress and head of data analytics of the Congress party, Praveen Chakravarty, wrote a piece in Deccan Herald the titled The world’s first ‘Exit Poll Stock Market Scam’. Piyush Goyal, a BJP spokesperson rubbished these allegations claiming that Indian investors had actually benefited because they sold stocks to foreigners at high prices after the exit polls.
Many analysts have since analyzed the data available on the National Stock Exchange (NSE) on transactions by different types of investors. All of them has drawn their own conclusions about which political party was correct. But what does the data really tell us? 
The NSE provides turnover data for the following categories of investors: Banks, Insurance Companies, Mutual Funds (MFs), Alternative Investment Funds (AIF), Portfolio Management Services, Foreign Portfolio Investors (FPIs), Retail and Others. 
The retail segment is defined as Hindu Undivided Families (HUFs), individual proprietorship firms, non-resident individuals, and partnership firms/Limited Liability Partnerships (LLPs). Others includes public & private Companies/bodies corporates, trust / society, domestic financial institutions (other than banks & insurance), statutory bodies, New Pension System (NPS), non-government organisation, depository receipts, Non-Banking Financial Company (NBFC), domestic venture capital Fund and proprietary trades.
The biggest players in the Indian market today are domestic MFs, FPIs, Retail and ‘Others’. Looking at the data of these four categories from a day before the exit polls to a day after the election results throws up an interesting trend that has not been discussed by commentators.
Here in the chart below the average buy/sell and net data for entire month of May compared to the data for 31st May, 3rd June and 4th June. Those who are alleging a scam, including Mr Chakravarty, are pointing to the huge amount of buying by FPIs on 31st, (Rs 95,549.53 crore). It was 447% higher than their daily average purchase, presumably on the assumption that exit poll results would favour BJP.
However, it makes no sense to see only one-sided data. One has to see the data on sales by all sets of investors and draw conclusions based on the net figure. When one looks at the ‘sell’ data in the chart below, it is clear that FPIs were also huge net sellers on that day (Rs94,008.84 crore); in fact their sales were 338% higher than the average for May. 
The net result? Their total net purchase was only Rs1540 crore on 31st May. If this was their positioning based on insider knowledge, they hardly made much money on June 3rd.  Our next chart gives us the picture of fresh net positions taken by all four major investor categories on 31st May. MFs were net buyers of about the same amount as their average purchases in May; FPIs were slightly positive and retail investors as a block were negative. Not a single category of investors had a taken big additional positions on 31st; their buying and selling were all around their average trading in May. 
What happened on June 3rd when the impact of exit polls hit the market? The market opened high and stayed high. It is hard to see how anyone could have bought low that day; most stocks opened with a big price gap-up. The question then is how did the main market participants behave. Whose behavior showed that they knew of the sham exit poll figures? 
Surprisingly, it was not FPIs but the so-called retail category. The net buying of mutual funds was slightly higher than their May average, while “Others” followed their same pattern as May. The FPIs, in fact, jumped in with their feet and were massive net buyers. Who sold them the shares? It was ‘retail’ segment.  
But before we jump to conclude that retail investors are very smart, let us remember that MFs and FPIs are a fairly homogenous category, but we know very little about the exact composition of retail investors. They are not the retail, or ordinary small investors, as one would believe. The category includes HUF and NRIs. If someone knew about the exit polls it was certain someone from these sub-categories, which include many really big investors with deep pockets.
On Tuesday, when disastrous election results for the BJP started coming in, another drama unfolded. Mutual funds were net sellers of Rs 6249.12 crore, FPIs were net sellers to the tune of Rs12511.07 crore and ‘Others’ sold Rs2432.15. Who bought selling of  Rs21,192 crore worth of shares from them as the market crashed as much as 9% initially and later recovered to end 5.7% down? Again it was the ‘retail’ segment which was net buyer of Rs21,178.94. ‘Retail’ investors had outsmarted institutions for the second day. Was this a fluke? 
In the following days, retail investor activity has returned to normal levels. For example, on June 11th, a week after results day, they net bought just Rs800 crores. This sudden burst of activity raises questions about who were these ‘retail’ investors who made such huge profits in just two days and then seem to have disappeared.
No, foreigners did not make money. They lost. Some big investors, hidden under ‘retail’ label are the real gainers. This is wide category which includes NRIs but far easier for the regulator to investigate. 
Who are these people who seem to know about the exit polls and made billions this time? The opposition leaders who are demanding an investigation certainly have a case; it remains to be seen whether the Securities and Exchange Board of India (SEBI) will want to get to the bottom of what could be a poll scam. 
4 weeks ago
I too was a buyer on 4th June but with three caveats. I am a (very small) investor. One, I don't invest directly in shares or any derivatives. I invest only in Mutual Funds. Two, I was not a seller (did no transaction at all on 31st May or on 3rd June). Three, yes, I invested big way(in mutual fund schemes) only on 4th June. But my decision was prompted by philosophy of 'Buy on dips, especially when market falls big'. I feel big buying by 'retail' investors on 4th June was a result of 'Buy on dips' strategy rather than any scam. My strategy did not work though, since I was allotted units by Mutual Funds on closing NAV of next day i.e. 5th June 2024. Reasons for this has been widely reported in financial press.
4 weeks ago
Very interesting analysis. I was one of them :D ! Had the feeling that this seems temporary as BJP emerge as the major party in the morning of results day itself and I can focus on the undervalued falling stocks. Further, the way PM & HM did the tip-offs, it was VERY clear that markets are going to be manipulated(I felt if they have to come to say it, then it means they intend to agitate the waters which would have not agitated by themselves). Invested with whatever reserves I had in the good-quality-high-fall stocks on the fall day. One stock I regret investing less in was STAR(STRIDES PHARMA went to 687 and CMP 979). Could only buy a handful @706.
Also, have feedback for Debashis sir and team on the 5 StockLetters. Please let me know where to share the feedback.
4 weeks ago
Of - Pati, Patni and "Woh".
All eyes are on "Woh" ;)
Replied to saurabh.khanna comment 4 weeks ago
Woh kaun thi ?
4 weeks ago
This is a very well analyzed article on the Poll Scam. In fact to me it is more succint clear and provides precise details which I could not comprehend from the Press briefing of Rahul Gandhi. However, as you said rightly the truth can come out with erious probing by SEBI ,but I don't expect SEBI or any other Government agency to act seriously. Therefore the only way out is an enquiry by the JPC as demanded by Rahul Gandhi.Otherwise tails will continue to waggcalling this a big Poll Scam.
Replied to mohansiroya comment 4 weeks ago
Thanks a lot Sir. Having been in the MARKETS pre-Harshad era, I know that it is very difficult IF not impossible to wake up the Authorities to do anything. Debashis knows it well, but when we decided to shine a light on these murky goings on we did with a sense of purpose that some oen somewhere will benefit out of this. Thanks once again . VIJAY N.S.
Divakar Goswami
4 weeks ago
If stocks i would like to add to my portfolio are down by 25% on June 4, it is a buying opportunity and i will participate. And similarly, if my small cap/midcap funds are at 55% for the year and i know there is uncertainty with election resuts (exit polls have been consistently wrong), i may have sold. Doesnt have to be a conspiracy.

Amit Shah in his hubris made the comment about investing before results are announced and Rahul Gandhi is also politicking and has jumped on this this to embarass the BJP. I wouldnt get my knickers in a twist.
4 weeks ago
Interesting data.

It seems like you're saying that there was no scam, and that the behaviour described was exactly what you'd expect to see in a situation where people believed that the BJP was going to win with a thumping majority and were shocked when the BJP barely managed to hold on to power.

Yes, some people made contrarian bets and made money, and yet others hedged by selling a part of their positions, and that's normal too! That's what makes it a market!
Replied to SRS comment 4 weeks ago
Thanks a lot for your comments. The Data clearly indicates that the Trading Activity among "Retail" was out of the ordinary for those 2 days only. For "Old Bandicoots" like us who come from the pre-Harshad era we know what it could be. However we are constrained by the lack of granular data to pinpoint who were the perpetrators. But surely it raises a stink to heaves. ---VIJAY .N.S
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