The election commission of india has came out with calander for general elections.
Recently, the election outcome related uncertainty alongwith tensions at the border have kept markets jittery. The media is creating more noise (as always) and adding to the chaos.
In the light of uncertainty what a long term investor should do
- Book profits and reduce exposure to Equities or
- Add to equity exposure or
- Do nothing
Looking objectively to market movements during and post elections in the past should help in answering above questions to some degree. Below table compiles market movements across last 7 elections and presents information about BSE Sensex performance 6 months prior to elections and 12 months post elections, split as 6 months immediately after election and Next 6 months.
As evident in above table, in 5 out of 7 periods of 6 months prior and post-election, the Sensex has delivered positive performance.
- If you stay invested, the probability of making money in election year is high.
- The Negative return outcome for 6 months post-election are concentrated in 1997 -1998 years which was period of Asian Financial Crisis.
- CAGR of BSE Sensex from 1994 to 2018 comes to ~11% and The 6 month period both pre and post are significantly higher than 11% for the most of the positive return.
So what is your plan to handle the uncertainty erupting from elections?
- Being an Equity Investor you have to be an Optimist. Hence “Staying Invested” will prove to be the best strategy for the most of us. The above table confirms that it pays to stay invested even in an election year!
- Equity return are not only outcome of political situation but also of Global market performance, Currency movement, inflation, interest rate, GDP growth, Profit growth, fund flows and host of other factors who have very low connection with election outcome. Hence focusing on only Election outcome will lead to missing the signal coming out from other factors.
- Although past events as shown in above table shows high probability of making good returns in election year, one should not become over optimist and add aggressively as uncertainty still remains and the future might not pan out in the same way as in past.
- For a long term investor who is looking at investing for funding children education or own retirement, the best way to approach elections as an event which will come every 5 years and will pass by. One should stick to the investment plan and follow the asset allocation discipline. This will allow you to buy more when the markets come down on disappointing outcome.
Financial Advisor like us who are experienced enough will help you to in sticking to your plan and handhold in this period of uncertainty and help you one step in achieving your financial objectives