In a surprising setback, the ruling National Democratic Alliance coalition ended up with a much lower number of seats than what the exit polls (and they themselves) suggested just a couple of days ago. While the coalition still managed to achieve the majority mark, what spooked the market was the reduction in actual seat tally and the fact that Bharatiya Janata Party (BJP), on its own, couldn’t cross the majority mark of 273.
The stock market can swing a lot depending on whether the results align with expectations or not, and that is exactly what happened.
There is now a fear of coalition politics taking centre stage in the absence of a clear majority to a single party and new kingmakers playing their games as used to happen under earlier regimes.
And the market didn’t like this development one bit. At one point, both the Nifty and Sensex were both down more than 8 percent intraday with sectoral indices like PSU indices more than 14 percent down!
Election results are notorious for creating short-term volatility and uncertainty in the market but if we zoom out a bit, things generally smooth out over a longer period.
And zooming out is what is required to cut out the ongoing noise.
Long-term investors should stay calm
While experts and analysts will continue to drown you in data about how they know and can predict market behaviour, the reality is no one knows anything. Elections are like known-unknowns. We know it will happen but not how it will pan out. And even if you look at the historical data of the last few decades, it is evident that the market's behaviour is not consistent across different elections and their results.
So, if you are a long-term investor, then firstly, be calm.
It is too early to say anything but chances are that the political scene is likely to remain jittery till the new government takes charge. Also, markets prefer clarity. So markets too may wait for the same.
Also read | Investment strategy post-election results: How should investors position their portfolios?
But eventually, we need to believe in the India story. In my humble view, the country’s long-term economic growth trajectory remains strong and trending upwards, irrespective of what happens every few years in the political arena. And governments are expected to continue with a focus on the agendas of economic development and inclusive growth.
So, while the market can be volatile in the short term based on election results versus expectations, in the long term it will mirror corporate earnings growth. And that means that this or any other election outcome wouldn’t meaningfully alter that outlook in the medium to long term for a fundamentally strong economy like ours.
In the coming days, even if the market corrects any further, remember that India is the place to be in the global landscape and any correction would not be long-lived.
That said, what to do now?
Stay focused on your long-term financial plan
Don’t forget your financial plan. Patience will always win over knee-jerk reactions to such events. So instead of reacting impulsively to the election verdict, it is best to focus on your real-life long-term financial goals.
What this means is to ignore the election outcome and stick to your asset allocation for different goals and, if need be, rebalance when it gets out of your comfort zone.
If you are investing for more than five years, have a higher allocation to equities. If you are investing for a shorter time horizon like a few years, then just be debt-heavy. That’s it, and it is that simple.
Your financial discipline, a high savings rate, proper asset allocation and ability to remain invested for the long term will decide your financial future and not the election results. Taking a few opportunistic bets here and there is fine, but don’t try to be an adventurous cowboy (or girl) with your entire portfolio.
And as I said in this story before the election results, I repeat: "While those sitting on the sidelines with a large surplus may want to wait a bit more for clarity about continuity in the government/policies, etc, others should carry on with their investments regularly and without too much deviation. Occasional tactical bets are fine, based on your short-term views. But don’t try to change your long-established investment approach overnight because of election outcomes.”
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