Asset Management

Low protection cost in the first half of 2024

January 2024

Read Time: 3 minutes

2014 and 2019 Lok Sabha election cycles saw fair amount of Nifty rally going into the event, and since the 3rd of December, similar pattern seems to have started emerging this time again for the 2024 cycle. The watershed event before elections seem to be November – December the previous year when key Hindi heartland states go to the polls. Post that, meaningful moves have happened in election years that can be directly attributed to the national mandate.

2014 would be slightly different because the rally then started from September itself, when Raghuram Rajan took over as the RBI Governor. It may therefore make sense to break the rally into a story of 2 halves - (1) first half rally from RBI announcement till state elections and (2) subsequent rally from state election till the finals mandate.

2019 was different because the ruling party went into general elections losing all 3 of Rajasthan, Madhya Pradesh and Chattisgarh and there were apprehensions whether the mandate of 2014 could get repeated. The response to terrorist attack in Pulwama - Balakot airstrike by the establishment, made markets believe that nation would repose faith back in the incumbent and hence, almost the entire 2019 rally happened February onwards. 2019 therefore was again a story of 2 halves (1) State elections till 26th February, and then (2) the rally thereafter till general elections.


4th Sep, 2013 – Raghuram Rajan appointment

11th Dec, 2018 - State elections
6th Dec, 2013 - State elections

26th Feb, 2019 – Balakot airstrikes
16th May, 2014 - Lok Sabha elections

23rd May, 2019- Lok Sabha elections

Nifty saw a 15% plus pure election rally in 2014 from December onwards, after already having had a 15% rally the quarter before. By comparison, Nifty had a sedate 10.5% rally in 2019, most of it again happening after the retaliatory air strikes. This time around, a 3.5% rally in Nifty (20267.9 to 20969.4) has already happened in a week itself since the party at centre swept all the 3 key states in the Hindi heartland.

Markets seem to be already factoring in lesser uncertainty on domestic front, and ex of any major negative headline globally, will move towards zone of low option prices. Put prices will especially be lower than what they were in 2019 and we are likely to have a rising market scenario where Call prices are consistently higher than Put prices going into the election event!

After almost 10% underperformance in the last 6 months, Bank Nifty has had a fantastic start to December! The index has distinctly outperformed after state elections were out, entering deeply overbought zone (Relative Strength Index - RSI of almost 80), but even then, the Call prices have been higher than Put prices the whole of past week. The pattern may well manifest for the next few months when protection cost could be lower, not just to historical Put prices, but also to Call premiums that investors may be willing to pay higher for now to secure potential upside participation!

(This article was first published in

Author: Nandik Mallik, CIO, Avendus Public Market Strategies

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