If there is one thing that is hogging news headlines these days, it is elections. With several state elections coming up and the general elections next year, there is enough news to be had.
And markets typically react to anything that is election-related. For instance, in early 2017, markets pulled out of their end-2016 slump as state election results turned favourable for the BJP-led government. The 2014 election results set off a 3-year long rally. Equity market outlook by analysts for this year cited the elections as a key uncertainty. Election years, such as the one we’re headed into always pose the question of what strategy to adopt. We have the answer.
Political stability is usually cheered and markets turn wary in the face of political uncertainty. This has to do with the regulatory and economic impact of governments. Think of it along the lines of the effect budgets have on stock markets – budget proposals impact business prospects, taxation, incomes, government spending, government finances and so on.
In a similar, broader vein, government policies have the ability to change the strength and outlook for the economy as a whole. For example, the earlier UPA regime’s MGNREGS scheme helped boost rural incomes. The current government’s implementation of GST, overhaul of real estate regulations, demonetisation and the like have had far-reaching effects. A stable political climate offers more comfort on government priorities, potential focus areas, and policy direction. This holds especially true when existing governments have effected reasonably sound regulations and policies.
Therefore, markets also take cues from the political and economic climate in the run-up to the elections. In 2014, a change in government was cheered as it addressed the political stalemate, corruption allegations, and stagnant growth of the previous government. Markets, in fact, began building in a positive election outlook from end 2013 onwards. But in 2009, when the UPA-led coalition won a second term, markets reacted by gaining 17% in two sessions, and even hitting the upper circuit.
So, what are we saying? Just one thing – that elections move markets. If you want to get in on the theme and have an opinion on election outcome, we have the strategy.
There can be only two election outcomes:
- the current government sustains
- or there is new government in place.
So, for each of the two outcomes, we have designed an equity fund portfolio. Based on who you think will win the election, you can invest in the portfolio that is built for it. You can find these portfolios in the “Invest” section under mutual funds on our platform. FundsIndia customers will also receive a mail from us detailing the portfolios and the reasoning behind each.
FundsIndia’s Research team has, to the best of its ability, taken into account various factors – both quantitative measures and qualitative assessments, in an unbiased manner, while choosing the fund(s) mentioned above. However, they carry unknown risks and uncertainties linked to broad markets, as well as analysts’ expectations about future events. They should not, therefore, be the sole basis for investment decisions. To know how to read our weekly fund reviews, please click here.
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