The election polling starts in a week from now, and there has been a considerable amount of speculation from the investors’ community. While a trader/stock investor has good reason to be worried about their investments, it is surprising to see the mood of investors who have invested in mutual funds with a long-term view and still have speculation strategy.
At Sakal Money, we believe that a long-term investor should not get carried away with such short-term events as they do not have a very significant impact.
We believe, the election is business as usual and all it does is create short-term noise. Undoubtedly, the elections saw a highly volatile market and have created financial uncertainties in the country, right from depreciating rupee, rising crude prices, dull or enhanced market sentiments in the short-term, trade wars, depleting foreign reserves, inflation and so on.
But all this is short-term.
If you are an investor with a vision having a long-term view, you should not have a myopic eye to such events. Instead, the investor should put to use such events for cash-in.
What should be the approach during election season?
Let me answer this by considering that an investor falls in either of the two buckets - long-term investor, and short-term investor.
Let’s see how the market has faired in the past over the long-term.
In long-term, as you see, the market has bounced back every time it corrected, and it has attained greater highs. A decade ago, the investors’ community was skeptical of Sensex at 10000 and considered to be over-valued and warranted correction. In a decade we have seen 4x growth which was not a 45-degree straight line but came with multiple short-term corrections that were due to events such as demonetization. This indicates that you should hold back and sit tight.
Thus, as a long-term investor you can consider using the three months of election volatility as an investment opportunity, and you could add at every dip.
In the past five polls, the market has moved up in three instances. The year 1998, 2009 and 2014 were the ones that ended in green while 1999 and 2004 remained red.
Three month returns after the election
|May 11, 2004 – July 12, 2004||-7.1|
|May 14, 2009 – July 14, 2009||16.7%|
|May 13, 2014 – July 14, 2014 ||4.8|
Source: Sakal Money; BSE
One thing to see here is the volatility. In short-term, the market fluctuates significantly owing to developments at the macro level.
Equity is not for short-term “investor” and short-term investors should stay away from equities, and equity related instruments are owing to the expected volatility during the election season. Instead, you should look for capital protection and opt for money market funds or short-term debt funds.
When investing in mutual funds, an investor should have a long-term view and thus it is pointless for investors to worry about the impact elections can cause to their investments.
An investor who is looking to hold on to his investments for a decade should not run around shifting his/her investments to other asset classes such as gold, real estate. As an investor, you should only exit if there is any fundamental change in the investment thesis, any change concerning the fund’s investment philosophy, change in fund management or continuous underperformance of fund.
We, at Sakal Money, believe that the market will remain range bound with no clear direction and a high degree of volatility as the mahagathbandhan plays against the current government in crucial states such as Uttar Pradesh.
In an emerging market, such as India, that offers immense diversity, demographic dividend; the only way to succeed is the value of investing with a disciplined approach. If the new government can execute reforms such as improving ease of doing business, expanding manufacturing capabilities, building infrastructure and leveraging technology, India remains one of the most favorable investment destinations. Also, around 200 million Indian will be entering the middle-class bracket over the next decade. This could translate to massive growth in discretionary spending thus providing an enormous opportunity to consumer-related sectors. So, India continues to offer every reason to remain excited.
From an investor’s point, we believe it is a great time to enter the market when it is in the correction mood or is highly volatile. A disciplined investor who has systematically invested in the market by way of mutual funds should evolve as the clear winner.