09 April 2019 AnkitChadha

Impact of Elections on Indian Stock Markets

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BSE Sensex is a collection of 30 stocks which are the largest and most actively traded set of stocks listed on the Bombay Stock Exchange. The Sensex, or ‘sensitive index’ is supposed to be a true gauge of India’s economy and as its name suggests, it is sensitive to a lot of stuff like oil, currency, world trade, politics & elections etc. among many other events and things.

So, with only a few days to go for our Lok Sabha general elections in 2019, the million dollar question is: “How will the results of these elections impact the Indian stock markets?” Will there be any impact at all? Will the impact be positive or negative? Let’s try and figure out!

While there is little doubt that there will be some “short term” impact of the election results on the stock markets, it is actually impossible to correctly predict both the result of the elections as well as the reaction of the markets to these results. In 2004, BJP led Vajpayee Government was largely expected to come back to power again; however when the ‘India shining’ campaign failed and the Congress Government came to power, the market or index tanked by 20% in a few days. Nobody expected this to happen!

Similarly, when Congress came into power again in 2009, surprisingly the index went up by 20% shortly after the elections, something which nobody could have ever thought of or predicted! If you are following exit polls and think that Modi led NDA Government will come back to power again this time, (with the market rejoicing by going up 10-20% after the election results), it is time to think again! In markets, just like in Life, nothing is certain or obvious. Markets have a way of surprising everybody and only a fool would try to predict how markets will react after elections.

Now, if you are a long term investor who has invested in the stock markets with a time horizon of at least 3-5 years or more, what should you do? The answer is simple! Stay invested! If the market reacts positively, the value of your investments will skyrocket. And in case the market reacts negatively and spirals downwards, then you will get a fantastic opportunity to invest more and deploy cash at attractive valuations. It’s a win-win!

So, moral of the story is that one must not pull out money from stocks or equity mutual funds. Remember that this asset class gives you a return of 15-25% on an average, which is 3 times the return given by any other asset class like gold, debt, FD or real estate. The only condition for getting these magnanimous returns is that the time horizon needs to be long and the returns will be non-linear due to the volatile nature of this asset class. So, just like one does on a roller coaster, sit back on your seats and enjoy this volatile ride! Look to invest more if the market tanks and you get an opportunity. This is the time to forget your worries and be happy. Ciao!