Booking profits immediately after the election results might not be a good strategy as data shows that the benchmark indices have mostly gained ground after poll results in the past.
In the last five general elections, the Sensex and Nifty were trading higher six months after the election results had been announced. Further, in the last three elections, the indices were up at the end of the first month itself, from the day the results came out.
Moneycontrol has analysed the performance of the Sensex and Nifty in the one-month, three-month, six-month, and one-year periods from the day poll results came out over the last five general elections.
If the three-month movement is taken into account, both the Sensex and Nifty clocked gains on three occasions while losing ground in 2004 and 2019. Similarly, if the one-year period is considered, again there were two occasions when they dipped: in 1999 and 2019, though the pandemic was the bigger reason for the fall in 2020.
A similar trend is visible if the one-month period is considered as there were three occasions when the indices gained ground, while declining on the other two occasions, in 1999 and 2004.
This time, despite expectations of a market decline prior to the elections, the Nifty actually rose to the 22,000-23,000 level in May from 19,800-20,000 in March, says Gaurav Dua, Senior VP & Head – Capital Market Strategy, Sharekhan by BNP Paribas. He believes a similar apprehension is playing out in terms of a post-result correction.
Dua, however, doesn't subscribe to the theory of timing the markets around elections and suggests that while there might be volatility, material market falls are unlikely. He believes there could be an occasional 2-5 percent pullback, like the one seen in March, but timing this consistently is difficult. He therefore doesn't advocate waiting until after elections to act.
Similarly, Gaurang Shah, Senior Vice-President at Geojit Financial Services, emphasised the stability of long-term investments despite election outcomes. He believes that elections are a regular part of democracy, and basing investment decisions solely on the results is illogical. Instead, he advises focusing on long-term opportunities and making calculated decisions.
Further, Shah is of the view that selling stocks post-election lacks is not a logical approach as regardless of the election outcome, the long-term perspective remains unchanged.
At the same time, Shah believes that if the BJP secures a majority, there is a potential upside; if not, there might be a downside, presenting an opportunity to invest in fundamentally strong stocks for the long term.
In a recent note, global financial major UBS predicted that the BJP would retain a single-party majority, and anticipated policy stability and reforms, which could potentially lift Indian markets.
The UBS note added that a robust BJP mandate could bolster infrastructure spending, benefiting industries such as industrials, capital goods, utilities, defence, cement and real estate. On the other hand, a weaker mandate might prioritise consumption, favoring consumer-led sectors, it said.
UBS added that election impacts fade over time, viewing equity weakness as a buying opportunity and favouring medium- to long-duration bonds, particularly if yields rise post-election.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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