Prof. Dr. Vijay Cakkade
Elections are not only a democratic process but also affect the overall economy in many ways. Along with its political stance, economic policies are drafted in the party manifesto or promise. Domestic as well as foreign investors are keeping an eye on all these.
Domestic as well as foreign investors vary the amount and nature of their investment. As a result, elections and their impact on investment levels and stock markets. How will every small, medium investor be market direction after election? There is confusion whether to increase the investment or withdraw it. The market direction and our investment strategy can be explained by how it responded after the previous general elections and earlier in the short and medium term. Although the stock market is always volatile, it seems to be more sensitive in the period before and after elections. The next table shows that the returns given especially in the period 1 month and 1 year before elections and 1 month and 1 year after elections and in the long run 2 years period will be helpful to draw important conclusions.
The last six general elections have seen negative returns in the short term, i.e., in the one-month period before and after the general elections. After the elections, the market is in a skeptical or 'wait and watch' mood for the formation of the government and clarification of its economic priorities. Examining the 1-year period before the election, there is only one negative return, and after 1 year the election effect is also positive. If we look at the 2-year period after the election, the returns are not only positive, but double-digit. This return looks good at an average of 41% in 2 years or 20 percent annually. It is clear that long-term, careful investments in the stock market will yield better returns. Fluctuations in the market and the fear mentality of the investors become unwarranted. Those who panic and leave the market, suffer huge losses. The longer the duration, the more stable and higher the returns, this formula appears. According to investment guru Warren Buffet's guidelines, after buying shares, one should invest with the understanding that the market is closed for the next 5 years.
2024 election and market direction
The stock market has established a few-month high, and it is clear that the market will continue to strengthen in the future. It is important that the policy framework that came to power has not changed regarding elections and government policy. It becomes an opportunity to buy good stocks due to short-term uncertainty and if there is a fall. Considering the long term, infrastructure investment, technology development, expanding middle class and its growing workforce, international investment inflows are all positive trends, and it is estimated that the 1-2 years after the election will give 15-20% returns.
As the current political party-wise situation is such that it can provide a stable government in the future, a phased investment strategy with an investment horizon of at least 2 to 5 years can yield good returns. As the market is providing more opportunities globally and India is becoming an attractive area for investment, shares and mutual funds can be a means of financial wealth creation and financial stability for financial investment. It is important not to leave the market after seeing a short-term loss, seeing a fall in the market, just as short-term large profits are a way to cheat.
