Elections are on top of the mind of all citizens, including investors, these days. Many investors have been delaying their investment decisions till the election results are declared. This I have been maintaining for quite some time is the worst decision which many investors have taken. Investing is a process of wealth creation and should not be influenced by events which are routine and unpredictable. In case of elections, both the outcome and its impact on the markets is impossible to determine. Hence, postponing or altering investment plans till the election results, goes against the principles of wealth creation.
This is in no way undermining the importance of elections. Choosing sensible candidates is an important national duty. Well-intentioned and qualified legislatures will go a long way in improving the lives of our countrymen. Also, a stable government with a progressive leadership is extremely desirable. However, when discussing market movements one needs to keep in mind many different variables.
Firstly, while the outcome is very important, it is impossible to predict with any degree of accuracy. Secondly, as a nation we have reached a stage of development where at least the short to medium term economic progress is not too dependent on political decision making at the Centre. Lastly, market movements in the very near term are also a function of what scenario has already been discounted by the markets, liquidity coming into the markets, global equity sentiments, prices of gold, oil and other commodities as well as several other parameters. Now, how all these factors play out over the next 40 days is anybody’s guess. Hence, it is best to stick to your financial plan and ignore the election noise completely.
As a country we are certainly on a strong footing and gradually but surely moving forward to become a leading economic power. Equity assets are the best way to take advantage of this impending economic progress and create wealth in the long run. Equity markets have gone up nearly 8 times since the elections of 2004. Immediately after the elections we had a downward circuit on the market. Whether one bought before the downward circuit or after has made a very little difference to the returns over the last 15 years. Also, getting the timing completely right is near zero probability in the market. Therefore, we can safely conclude that while elections and their results have great national consequences, it is of practically nil consequence as far as share market investments go.
(By Ashish Kapur, CEO, Invest Shoppe India Ltd)
(Disclaimer: These are the views of the author. Please consult your financial advisor before making any investment)