Forget elections, India growth story will carry equity markets over the next decade

Equity markets are expected to continue its run in long term, despite elections and short-term blips

Legendary fund manager Peter Lynch once said that investors have lost much more money trying to predict corrections than they have in actual corrections.

Why is this relevant today?

As we approach the upcoming elections, investors grapple with the decision to wait or act. The recently concluded state elections injected positivity into the market. Already many investors have been sitting on the fence as Sensex has gone up by close to 10 percent, BSE Midcap has gone up by 33 percent and the BSE Smallcap index has gone up by 37 percent in the past 1-year period.

The question is: Should you invest now, or wait for the 2024 general elections to get over? Should you invest closer to the election date?

Peter Lynch's wisdom emphasises the risks of trying to time the market based on predictions. An NRP Capitals analysis of S&P BSE Sensex returns 6 months and one year before and after the last 6 Lok Sabha elections shows that equity markets most of the time go up whether you invest before or after the elections.

Elections and equity markets

But in the context of India's unique and less-penetrated stock market, waiting too long might mean missing out on valuable opportunities. There is a bigger story here. This is a different India, and its market dynamics are distinct.

Notice that the average returns in various timeframes—6 months before the election, 6 months after the election, and one year post-election—have consistently been positive, with the exception being the unique circumstance of the 2019 elections, marked by the COVID-19-induced market collapse. These figures indicate the market's robust performance in the pre-election period and beyond.

However, considering the Sensex's trajectory from its initial level of 100 to its current position at 68,000 over the past 40-42 years, there's little cause for concern. Let's shift our focus to the insights I'm about to share.

I won the ovarian lottery; Warren Buffett

The luck of winning the ovarian lottery and being born in the United States at the correct time and place was frequently emphasised by Warren Buffett. This sentiment, expressed during the 1997 shareholders meeting, was critical to his success. The same can be said for us, the witnesses of today's India. Are we not fortunate to experience the dynamism, growth, and opportunities that define the present and shape the next many decades?

As we engage in the democratic process and await the unfolding of election results, let's not lose sight of the bigger canvas that is already laid out — the canvas of a new India. Elections are pivotal but the journey ahead extends far beyond the ballot box. Let's embrace the uncertainties, draw inspiration from our past, and, like Warren Buffett, acknowledge the luck of being in the right place at the right time. The next 20 years are calling, and we, as participants in this journey, are indeed fortunate to witness and contribute to the evolving story of our nation. So, don't merely mark your vote; mark this moment in the continuum of our incredible India.

And in the ever-evolving landscape of our country, analysing the next phase of development requires more than just a glance at historical data. While the past is undoubtedly crucial, it's equally vital to keep our gaze fixed on the future — a future that is markedly different from what it was two or three decades ago.

Here are some data points as to why we feel the next decade belongs to India.

·      Urbanisation: National Infra pipeline spend of $1.4 trillion in FY2019-25 coupled with $380 million set aside for industrial smart cities.

· Rising middle class will push e-commerce growth to $350 billion and per capita income growth from $2,300 to $5,000+ by 2030.

· The Start-up ecosystem is unstoppable and poised to grow because of reforms and more and more market participants will come.

· Hi-Tech growth (IT, Pharma, Handsets, Chemicals, Auto parts) Y2019- $6.5 billion/month to Y2023 - $12 billion and expected in Y2030 to be $20 billion. These start-ups and hi-tech growth areas currently mark 15 percent of GDP and are set to increase to 30 percent.

· Education investment to generate skills for the shift of a 15 percent economy is given.

· Energy transition in acceleration with $700 billion in energy investments over the next decade is already in place.

· In the coming 3-5 years, India, presently holding the fifth spot among the world's largest economies, is poised to ascend to the third position. Forecasts indicate reaching economic milestones of $5 trillion within the next five years and $10 trillion within the subsequent decade.

· Projections further anticipate India's ascent to the position of the third-largest global stock market within the next six to seven years.

In essence, while elections hold significance and understanding Sensex trends is crucial, constantly pondering over Sensex reaching new peaks is akin to fixating on a headline. Consider the historical journey—from starting at 100 in 1979, the Sensex is destined to surpass 100,000 and beyond in the future.

How to invest in equity markets?

Here are some easy tips.
1.  Continue SIPs (Systematic Investment Plans): Keep building a strong portfolio through monthly investments, leveraging rupee-cost averaging to reduce market volatility.

Also read: Of the 12 equity mutual fund categories, which one should you invest in?

2.  Use surplus cash wisely: Invest extra cash gradually, taking advantage of market dips. Follow a well-thought-out plan based on your risk tolerance and asset allocation. Consider mutual funds if you prefer professional management.
3.  Trim poor investments: Identify and correct bad investments by selling at market highs. This is an opportunity to clean up your portfolio.
4.  When to sell equities? If you've achieved financial goals or are getting closer, consider selling equities. Say you have planned to save Rs 20 lakh for a car or a down payment for a house in mid-2024 but recent market returns have helped you achieve that already. In this case, it’s safe to sell or trim your equity holdings. Plan to withdraw from equity at least two years before reaching any financial milestones.
5.  Rebalance Portfolio: Book profits when rebalancing or diversifying your portfolio. Transfer funds between different asset classes, keeping tax implications in mind.