Policy and politics on the index

Market returns are better under governments with clear and stable majorities and rise when major reforms are announced

- SUNDAR SETHURAMAN

The Sensex, the 30-share equity benchmark launched in 1986, has been a mirror of India’s economic landscape for 40 years. The index’s changing composition mirrors India’s transformation from a heavily regulated economy, dominated by a handful of industrial houses, to a liberalised market with genuine sectoral diversity. It also reflects the policy shifts during these decades and their impact, right from the turbulent 1990s, when P V Narasimha Rao and Manmohan Singh steered the economy out of a crisis and ushered in a new generation of reforms, to the Narendra Modi era, when increasing digitisation and the post-pandemic shift to equities triggered a sustained bull run in recent years.

Here is how the Sensex has fared under the tenure of various Prime Ministers.

(Nov 1990 —June 1991)

Chandra Shekhar’s was the second government of a 25-year phase — later described as the coalition era — when allies could bring down governments. Poor economic management in the preceding years and the Gulf War, which led to a spike in oil prices, pushed India into a severe balance-of-payments crisis. Depleted foreign-exchange reserves meant that India struggled to finance its essential imports. The government even had to pledge its gold reserves to secure a foreign-exchange loan.

Though the Chandra Shekhar government planned to usher in economic reforms, it could not do so as it lost the backing of the Congress party, which had supported it from outside, and failed to present the annual Budget. The Sensex declined by 2.2 per cent, the second-worst performance under any prime ministerial term.

(June 1991 May 1996)

The Sensex gained 181 per cent during Narasimha Rao’s term: The best performance under any Prime Minister. Rao oversaw economic reforms that rescued India from one of its worst fiscal and balance-of-payments crises and put the economy back on track.