Be it Indian markets or US markets, election results may have short term disruption, but in the long term, markets are driven by economic factors.
The final countdown to the US Elections 2020 has begun. Within a few hours from now, the US Presidential elections 2020 will be underway. There’s a big chunk of Indian investors who as a part of their diversification process invest in the US stocks. While 2020 has been a roller coaster ride for investors, the volatility doesn’t seem to go away in a hurry. The US election outcome is expected to take longer than expected, which may bring in more uncertainty as far as the next US presidency is concerned.
And, as most market participants say, stock markets do not like uncertainty which may result in a lot of volatility going ahead. But, remember, all these hypotheses and predictions may go haywire. Investors, therefore, need to be aware of the various outcomes and be prepared to take advantage of any possible outcome from the US elections.
Existing investors may well remain invested in fundamentally-sound stocks and long-term investors need not try to time the market. “As can be seen, the US markets are extremely volatile right now. No effort should be made to time the markets for short-term gains while long-term investments should be continued. In fact, any unjustified run on an intrinsically strong stock should be looked at as a buying opportunity now provided the fundamentals justify it,” says Col Sanjeev Govila (Retd), a SEBI Registered Investment Advisor (RIA), and CEO, Hum Fauji Initiatives, a financial planning firm which caters exclusively to the Armed Forces officers and their families.
Taking a cautious route and not going overboard can also be an approach now. A spectacular rise in some of the leading US indices has shown that tech-heavy stocks are the favourites with investors. Covid-19 has brought work-from-home companies into focus and no wonder Apple, Netflix, Google and many others have delivered huge returns in 2020. Any fall in the stock prices of these leading companies can be an opportunity to accumulate them for a decent long-term performance. “If the market corrects, then this would just be a temporary phase not permanent. We further know that American indices (Dow Jones, NASDAQ) are trading at higher levels even after there is a contraction in GDP numbers due to Covid-19 Pandemic. Therefore, considering the overall scenario, a cautious approach is advisable,” says Nitin Shahi, Executive Director, Findoc Financial Services Group
As per the latest data, real gross domestic product (GDP) increased at an annual rate of 33.1 per cent in the third quarter of 2020, according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased by 31.4 per cent.
“Be it the Indian markets or the US markets, election results may have short-term disruption, but in the long term, markets are driven by economic factors. If economic factors like inflation, currency, interest rate, and industrial growth are supportive and doing well, the market will move ahead. Short-term disruptions should always be seen as an opportunity for long-term investments,” adds Col Govila (Retd).
If you are still not invested in global markets, maybe it’s time to give it a thought. If you think that your investment portfolio in India is well-diversified across market capitalization, sectors, and assets classes, think again. Diversification is not complete unless one takes exposure in different geographies. One of the major risks to a portfolio is the country risk. This holds true at all times and is more pronounced if you are investing for the long term. A sudden turn of events in the internal economic or political situation may wipe a major chunk from one’s portfolio. So, what is the solution? Diversification. And what’s better than taking exposure to the US economy?