If history repeats itself, then this is the time to enter in the stock market. Data of the past 27 years show those who invested in domestic equities six months prior to general elections have earned positive returns over the next two years.
General elections in India are due in April-May 2019 to constitute the 17th Lok Sabha.
Sentiments are looking bearish on Dalal Street ahead of general elections amid unfavourable macroeconomic triggers such as rising crude oil prices and a tumbling rupee. However, the recent selloff in domestic equities has brought down the swelling valuation to a certain extent. There are expectations that the bulls will stay put in the market for the long run.
Centrum Wealth Research says irrespective of election outcomes (as Indian elections have thrown up all kinds of outcomes in the past), there is a high probability that long-term bullishness in the market would sustain, barring bouts of volatility around election period.
Sanctum Wealth Management says in the seven elections in last 27 years, if an investor entered the market six months before the general elections and held on for two years, s/he would have made on average annualised returns of 23 per cent.
Investors made the most during the 2009 elections, when the UPA Government won a re-election. While the least return has been a positive 1.5 per cent in 1999 (when the incumbent BJP won), this strongly implies that the 27-year track record has never seen erosion in wealth for investors when they have taken exposure to equity before an election.
Net-net, irrespective of whether the incumbent government wins a re-election or there is a change in power, markets have shown resilience in the runup to a general election in last 27 years.
For instance, those who had invested in November 2013 ahead of the 2014 election earned an annualised return of 14.3 per cent by November 2015. Likewise, investors who added equities six months before the general election in 2009, garnered 51.90 per cent annualised returns between November 2008 and November 2010.
Domestic equity benchmark Sensex plunged more than 10 per cent since August-end, and it is just a few points away from the level seen on December 29 last year.
Going by the trend seen in historical data, this is the time to sit down with a financial adviser or market expert to create a portfolio that can deliver robust returns in the coming years.
In the worst case, the current “aged bull” wont survive the onslaught of macro meltdown, leading to the onset of a bear market. But based on the experience of previous cycles, the good news is that market sluggishness triggered by a liquidity crisis is never a long-term phenomenon. Generally, a sluggish markets revive in 6-8 months, Centrum Wealth said.
Bear markets are intense, disruptive, disorderly, erratic and unsettling, but generally they are very shortlived in comparison to bull markets. Further, such bear markets provide the foundation for the next bull market, Centrum added.
For instance, Lehman Brothers bankruptcy triggered the worst financial crisis in the living memory in September 2008, but US equity markets bottomed out within six months (by March 2009). As a coincidence, the market recovery started in March 2009, thus providing the foundation for the longest bull market in US history, which is still going on (after nearly 10 years).
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