Impact of election resut on exchange rate in Indian context

Abstract

India is the fastest-growing trillion dollar economy in the world, third-largest in Asia as per the latest GDP numbers. Second largest by size in the world, 28 states, 24 different languages, it is one of the largest democracies in the world, and a three tier-government system makes it even more complicated. Given this, it is not easy to predict the election results in India, and even more difficult is to discern the impact of this on the Indian economy. The second degree of complexity comes from the market expectations and what it is already priced in. Through this paper, we will try to quantify the impact of election results using statistics on exchange rates and try to calculate the surprise value. We would use regression analysis using relevant variables, try to calculate the expected value of the surprise, muting the impact of other variables. Analyst expectations are taken from sources of financial news such as Bloomberg, FT, and other analyst reports. The current study is primarily focused on general elections for the last two decades. The final objective is to be able to quantify the value of surprise, given the degree of difference between expected and actual results.