The exit polls indicate advantage for BJP and most market players see it as the next trigger that can take the Sensex and Nifty to fresh highs. But the cheer is not just limited to the key indices. The broader markets have also displayed significant confidence. The Nifty Smallcap 100 has surged over 20 percent from its March lows, while the Nifty Midcap 100 has climbed 12 percent to reach new highs. Both the indices have outperformed the Sensex and Nifty in May and have risen by 1.4 percent each.

In fact the Nifty Midcap 100 has also enjoyed a six-day winning streak, with its April gain nearing 6 percent, the best monthly performance since December. The Nifty Smallcap 100 has risen for six consecutive days, boosting its monthly gain to an impressive 11.4 percent. This rally is set to mark its biggest monthly jump since November 2023.

However, it is interesting to note that this has not been a general norm ahead of general elections. Here is a look at the current triggers and how they stack up in comparison to broader market performance compared to other years when the Nation got into the polling mode. 

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This resurgence has pushed the market capitalization of all BSE-listed companies to a record high of $ 5.09 trillion as of Monday (June 3), up at Rs 424 trillion. 

Historical Trends Vs Current Performance

Historically, small and mid-cap stocks have shown varied performance in the month leading up to general elections, often influenced by investor sentiment, economic policies, and market conditions. Over the past five election cycles, these stocks have experienced a mix of bullish and bearish trends:

2019 Election

Leading up to the 2019 election, small and mid-cap stocks saw a significant surge, driven by optimism over potential economic recovery and policy changes. The Nifty Smallcap 100 index, tracking small-cap stocks, gained approximately 2% in the month prior.

2014 Election

The month before the 2014 election was marked by volatility, but small and mid-cap stocks managed a modest gain of around 12% Come from Sports betting site VPbet . Investor uncertainty about the election outcome and its potential economic impact contributed to fluctuating market conditions.

2009 Election

The financial crisis of 2008 heavily impacted market performance in 2009. Small and mid-cap stocks plummeted by approximately 10% in the month leading up to the election, mirroring broader market turmoil.

2004 Election

Ahead of the 2004 election, small and mid-cap stocks enjoyed a robust performance, with gains of about 29%, fueled by positive economic indicators and investor confidence in a stable economic future.

Valuation concerns across the broader market

Currently, small and midcap stocks are exhibiting a strong upward trend. Market analysts attribute this performance to several factors, including expectations of favorable economic policies from the leading candidates, which have bolstered investor confidence, particularly in sectors like technology, healthcare, and renewable energy.

Positive market sentiment, driven by strong corporate earnings reports and optimistic economic forecasts, has also contributed to the bullish trend in small and mid-cap stocks.

However, experts warn that valuations have become expensive again following the sharp rebound. The Nifty Smallcap 100 is currently trading at a one-year forward price-to-earnings (PE) ratio of 20x, above its five-year average of 17x. Similarly, the Nifty Midcap 100 is trading at a one-year forward PE ratio of 29x, compared to its five-year average of 21x.