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How do political events like elections affect the stock markets in India?
Events like elections have a big bearing on the stock market. Right now, there is a tilt towards the opinion that there is likely to be a continuity of the government. It is being debated whether the scale of the majority will be 400 seats or 300 seats, but a simple majority also does the job. With that in mind, the market is not as anxious about this. If a good part of the market is expecting this and something else happens, then we are in for a big surprise. Markets like stability. Otherwise, too, I feel that this is a short-term view. The real point is the medium-term and long-term implications. Many of the things that the government does will have an impact. If this government is perceived to be very decisive, it actually acts in earnest, and if it shows the urgency of doing things, then it will have a bearing. But when it comes to policy measures and other things being done, most of the things that have been done are not reversible. There's likely to be continuity of the government and there is no kind of anxiety in the market. We are seeing some intermittent decline here and there, but nothing beyond that.
Should investors tweak their investment strategy right ahead of election results?
Investors should be planning their investments irrespective of this because it's always a good time to invest in equity if you're investing for many years. It is always good to be fully invested if you have decided that this money is not needed for five years or more. The point is, should you be timing it? If you were waiting for a correction, for the election results, or for the election to be a turning point, you would have missed the biggest gains we have witnessed in the market. Many normal, average diversified mutual funds have doubled the money in the last three years. The three-year performance of most of the funds looks like a very nice, smooth, straight line going up. You would have missed it, and you will keep waiting. We are an island of growth, and foreign investors find that continuity will translate into a significant opportunity. If there is continuity, you have reason to be optimistic, but don't get excited about it. You should have your plan independent of the election. I don't think you should be doing any asset allocation based on the election result. You should invest for many years. So don't worry about the election; have your plan, and feel happy about the election.
Keeping all of this in mind, is there any specific sector or stocks that investors should invest in at this point?
There could be some sectors where we have the inkling that they will be positive. There are plans for solar resurgence or a huge emphasis on electric vehicles or a few other things. If the government is going to be generally positive for businesses, then you don't need to worry about it. Build a diversified portfolio and avoid poor companies, and that's all you need. What will particularly do well is why you choose a fund manager; they should decide on that.
Are there any risks that investors should be wary of or should consider before investing at this point in time?
The noise around elections gets so well established, and now, because of social media, we get so biassed with our opinions that we start believing what we think is going to happen. If everybody thinks there is going to be continuity of this government and somehow it does not happen, then we are in for a big surprise, and it could be short-term; it can linger for the medium term. There is a risk in anticipation of the election results.
All that investors should do is be upbeat about India. If we are likely to have continuity of this government and it is likely to have a good majority, if it can continue to remain decisive about business policy and other things, then I think you have every reason to be positive about the business outlook. India is proving to be an island of growth. The world is struggling, but we're the only ones actually growing by leaps and bounds on relative terms. In such a case, be a growth investor. Choose a few good growth funds, be at it and keep investing. Don't borrow and invest, but try and invest as much as possible.
Viewer's question
Rudra Chakraborty has asked, 'Please confirm when the market is at an all-time high, can we invest in balanced advantage funds, or should we wait for a correction? I also want to draw a SWP income of nearly 7.25 per cent, so please suggest. Also, could you suggest some funds for SWP?'
When investing in a balanced advantage fund, you should not spread your investments over time. You can invest in one go. To make sure that you're not catching a market high which could be unnerving, keep the money you need in the first year in a short-term debt fund. Don't set up a systematic withdrawal plan instruction in the first year. Do it after one year. The money you need every month should be kept in a short-term debt fund, and from there, you should set up an SWP for the next 12 months to ensure your first-year income. Keep your withdrawal rate around 6 per cent. A 7.25 per cent withdrawal is fairly aggressive. There are quite a few good balanced advantage funds. From our top-rated five-star and four-star rated funds, just pick two reasonably sized ones, and that will do the job.
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