India will keep growing irrespective of who leads the nation

And the one inescapable reality of stock markets is that a stock market bull is not structurally built to run long distances for a very long period of time. Unlike a horse.

Written by Guest

June 5, 2024 00:45 IST

A lot of things have suddenly changed today. (image/pexels)

By Shankar Sharma

The interesting thing that emerges from the verdict so far is that one can only hark back to the old Chinese chestnut “it is difficult to predict. Especially about the future”.

There was complete and total complacence among market participants and millions of investors in India on two things: One, equity markets will permanently return a smooth 12 to 15% year after year. And second that political outcomes are hard coded and can never change.

Now, that we have seen a very different picture emerge between the exit polls on Sunday and the actual poll results on Tuesday, the question that is haunting everybody is: What now?

It is useful to understand a bit of markets cyclical history over decades.

And the one inescapable reality of stock markets is that a stock market bull is not structurally built to run long distances for a very long period of time. Unlike a horse.

A bull market in the stock markets usually last between 4 and 5 years. After this period, it then goes through a period of resting or even significant declines before it gets ready for the next charge.

The bull markets in India started in March 2020 and have now entered their fifth year.

In the preceding 4 years, the Indian small cap market has returned between 35 to 40% annually! This is a massive return by any standards and it also then ties in neatly with my Lake of Returns Theory.

My ‘Lake of Returns’ theory postulates that a stock market returns lake has only a finite reservoirs of returns and after a period of sustained returns, which are higher than the longer term normal range of returns, the lake will inevitably flood over causing widespread damage.

A 35% to 40% annual return over 4 years is at overflow levels by any historical measure. What this means is that any unforeseen situation, like for example this election result, can lead to the dams getting breached and flooding happening.

A fifth year of a bull market is like a day five crumbling Test pitch, in which batting becomes very difficult if not downright impossible. Such a pitch requires a Sunil Gavaskar type of resolute defence rather than a Krishnamachari Srikkanth kind of wild offence!

A lot of things have suddenly changed today.

One can only imagine what the situation will be when the final results come out and it is split evenly between the two major blocks!

However, my view is very straightforward on the future of the markets: India is a country destined for growth and greatness and that growth and greatness is not predicated on any particular party or leader. It’s predicated on the sheer entrepreneurial energy and enterprise of a billion plus people.

Nothing changes that one basic premise. From the time I entered the equity markets 34 years ago till today, that has been the only constant that India keeps growing irrespective of who leads it simply because we have so much headroom for growth even now given that we are still 2,500 per capita GDP which is lower than most African nations!

Therefore how does it matter if party X comes to power or party Y?

If anything such situation should be welcome because it is only in situations like these that the foundations of a great wealth building journey can be created like they were in 1991, 1993, 2003, 2009, 2020.