All of us have witnessed that time of the year when super-campaigning was be witnessed for the 2019 elections. From heroic slogans to motivating speeches, saffron, white and green banners, some new faces familiarizing, some old ones revising, it is a new stage show in itself. But with these nation-wide efforts and changes being awaited, one of the most important questions is the “How will the elections affect financial markets?” Every year hour-long debates and sessions are carried on at various platforms discussing the tremendous effect elections have on the stock market and mutual fund investments. What impact does election have on the mutual fund investments? Here are some key points that clarify the election’s impact on investment ecosystem;
THE PUPPET SHOW- ELECTIONS AND THE COUNTRY’S FATE
There is no denying the fact that elections decide the fate of a country and once the government is decided whether it is a single, wholesome party or coalition government ruling our so-called democracy, it becomes a puppet show. The election comes every 5 years fixing a ruling party for the next five years. The initial two to two and a half years are passed by in understanding the strategy the government is trying to adopt and in that course all the sins it does. The latter half is spent cleaning and covering up those sins and making promises (false) of not committing the same sins next time.
But what concerns us more is how will the policy framing take place under a particular government. The code of conduct of any government gives an idea only regarding the modus-operandi of the investment market, not the performance. That totally and solely depends upon how the ruling government will perform, the decision it will make regarding fiscal policy, monetary policy, corporate growth and developing the infrastructure.
MARKET BEHAVIOUR DURING ELECTIONS
The market behaves in an unexpected manner and trends near the time of elections. There is a lot of volatility and turbulence making the investor panic every now and then. Research conducted by ET Mutual Funds shows that the market has shown upward trends in 3 out of 5 elections in the past few years. The elections of 1998, 2009 and 2014 have proven to be a blessing for investors as the market moved significantly up around these times. While a downward trend was witnessed during the elections of 1999 and 2004. The crux of the matter is, there was high volatility in the market during elections.
Also, while government performs well or if we put it this way, if the government performs as per the expectations of the people and brings about growth and development in the macroeconomic factors, the people (investors) start showing faith in the government further improving the market scenario.
All the jolts are for the short-term investor segment, the ones who have invested in the long-term plan need not worry much.
THE YEAR PRECEDING IS SILVER BRIBE
If you go by the trends, most of the times the year just before the elections has always been the bribe year for investors. So, if you see the 2014 and 2004 elections, 2013 and 2003 were the years of the excellent market rise. The 2009 elections saw a downfall a year before because of the global crisis.
THE YEAR AHEAD IS PANDORA’S BOX
We call it a Pandora’s box because the market never showed a particular trend a year after the elections. The only thing certain about the succeeding year is that there is a lot of volatility in the market. It may go up and up or may fall down and down or may also fluctuate up and down in very short spans. Right after the 2004 and 2014 elections, it took the market more than 2 months to stabilize.
The silver side to this is that investor’s planning to make a long-term investment should not be worrying much as the markets have performed exceptionally well post elections. It is only when there happen to be major changes in the mutual fund determinants like strategy or fund manager or performance criteria that the investor needs to keep a constant eye on the market.
There are ideally three segments of investors- short, medium and long-term investors.
For those looking forward to making a long-term investment, it is advisable to stick to the original strategy or plan. The asset allocation also remains the same as in the long-term, the volatility and risk are averaged out. Also, making SIP investments is highly recommendable.
For short and medium-term investors, it is advisable not to make investments in equity as they are highly volatile and risky. You can go foe debt-fund or money-market funds.
Also, this is an ideal time to start investing. It gets difficult to map the market in volatile conditions. You can start with SIP anytime at www.piggy.co.in and be a happy investor.
Start Investing, Stay Invested!