Sensex, Nifty correction on election verdict: 5 point strategy for investors

Published: April 27, 2019 11:45:36 AM

As election fever grips India once again, the silent uneasiness on Dalal Street can be mistaken for calm. The general election’s verdict may turn out to be a day full of twists and turns, but, for a smart investor, every swing can be an opportunity to make money.

Historically speaking, five of the seven general elections held in the country have delivered strong positive returns

By Puneet Maheshwari

As election fever grips India once again, the silent uneasiness on Dalal Street can be mistaken for calm. The general election’s verdict may turn out to be a day full of twists and turns, but, for a smart investor, every swing can be an opportunity to make money.

Historically speaking, five of the seven general elections held in the country have delivered strong positive returns, one year around the election time. That can be a good passive cue for investors. But rear-view economics is always a lot simpler.

Puneet Maheshwari – Director, Head of Business Development, Upstox, predicts that while the market’s reaction would largely depend on the nature of the government that gets formed, a sharp correction is perfectly possible. It is not just about how you react to the correction but also about how you proactively use it to your advantage, he adds.

Puneet lays out a 5-point strategy for market participants to help them not only hedge their positions but build all-weather portfolios that can withstand sharp corrections on the counting day—May 23, 2019.

Bet on sustainable sectors:
Look out for the sustainable story that is unlikely to be impacted by the election outcome. For example, consumption and rural themes like FMCG, two-wheelers, NBFCs, private banks, etc. are largely immune to the election’s outcome. These are consumption stories, deriving their value from rising income levels and rising demand. In case of correction in the markets, use lower levels to accumulate more of these consumption stories.

List stocks to buy during correction:
Make a shopping list of stocks that could give opportunities to buy in the event of a correction. Then, use the market fall to make the best of the same.
In the NBFC crisis of late 2018, stocks like Bajaj Finance and Bajaj Finserv lost more than 35% from their peak levels. But in less than 6 months, they more than recovered all those losses. That is what happens when quality stocks fall due to sympathy.

Restructure portfolio:
A post-election correction is also the time to restructure your portfolio. Take this opportunity to ease out low-quality stocks from your portfolio and induct stocks with a sound earnings model, strong management, and high corporate governance standards. This combination will rarely disappoint you.

Follow the plan:
Don’t tinker with the basic rules that your financial plan follows. For example, your plan normally has an in-built risk mitigation mechanism wherein profits are reallocated to assets that are under-priced—based on allocation limits. Such limits are meant to see you through the vagaries of the market. If the correction after the election day gives you such opportunities, then just stick to your financial plan and execute the same. Your plan is your best friend at such times.

Go for Put options:
Last but not least, this is the time you must really use the power of put options to the maximum. It is a limited-risk strategy to play the downside. You can profit on the correction without tinkering with your core portfolio and also with limited risk. Of course, it is best to talk to your financial advisor before jumping into them. Investors do not need to worry overly about a market correction on the vote counting day. It is more important to have your back-up plan ready to execute!

(Puneet Maheshwari is the Director, Head of Business Development at Upstox. Views are the author’s own.)

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