The 2014 Indian election is officially underway. In just over a month from now, we will know our next Prime Minister, and the composition of the Lok Sabha. An important question for investors is how the results of the election will impact the markets. The election matters both for short and long term market movements. During the last general election in 2009, Congress won a greater than expected number of seats, and the Indian stock markets rose 17% over the two days following the election result. In the previous general election in 2004, when the BJP unexpectedly lost, the markets fell 17% over the two days after the election results. This information tells us that whatever the result of Indian election, we can expect stock markets to be extremely volatile in the days immediately after the result. If the BJP win the election comfortably, meaning that they gain enough seats to build a stable coalition expected to push through significant economic reforms, then markets will rally. Markets have been rising in recent weeks in anticipation of this, and a resounding victory for the BJP will confirm these movements. On the other hand, if other small parties do better than expected, this would hinder the likelihood of economic reforms getting put in place, and will impact the markets negatively as a result. For example, if the Aam Aadmi Party performs well, this would weaken the power of the ruling party. If the BJP does worse than expected, or the Congress does better than expected, markets will likely take a large hit following the elections.