INVESTMENT: Ignore election hype, invest gradually

We are about to face the general election in the next few months and there is talk around the impact of elections on your existing stocks and mutual funds returns. With the information overload we see nowadays, investors keep pressing the panic button and keep asking whether they should change their portfolio and what should be their overall strategy in the light of the upcoming elections.

Well, let me tell you, this is way simpler and straight than it seems. In fact, you would find people, rather I would say every other person in India, is a political pandit and cricket coach and tend to have a strong opinion on these matters. Besides, with the emergence of social media news and information is always at your fingertips, making things look way scarier or worse than it actually is.

Yes, our stock market does need a stable government as it leads to a better economic performance. But our country has already gone through major events like demonetisation, weak rupee, high oil prices, etc, which have not deterred the stock market performance, except for a short term. As long as growth and earnings are in tact, you need not not worry.

Election is really a temporary phenomenon and only affects sentiments for a short-term period, never over a long term. So there is no reason to worry if you have invested for a long-term financial goal that doesn't require any change of strategy due to temporary market movements.

If you look at the historical data of Sensex during every election, say for the last five or six elections right starting the year 1998, you would find that the market was up during the six months period prior to the election. It went up in 1998, 2009 and 2014. But the same was not the case when we talk about the election years of 1999 and 2004. The market did not perform well during the pre-election period in those years.

And the trend continues for the post-election days as well. It never pays to invest money after elections are over. Other than few specific years like 1991 (liberalisation period) and 2009 (a year of market recovery after the global meltdown), the market was normal in any other years.

What you need to understand is the fact, that Sensex remains highly volatile during election time. Besides, India has seen variety of governments ranging from coalition to a full majority in all the past 30 years or so and during this time our GDP growth has been 6% on an average. So, elections really do not make any difference as such. In fact, what you should be focusing is earnings and growth. Bear in mind that India is one of the fastest growing countries in the world and is well-placed to become a developed country in the next few years. As long as the growth rate is 6% and grows further, there is really no need to worry for which party is getting elected.

You should focus on basics and follow a long-term investment philosophy. Don't change your asset allocation because of the hype around you. It will not impact your returns. At present, there is an overall global slowdown and earnings and growth are in the best shape. You should rather use this time gradually to invest in the market and optimise the benefits via Systematic Transfer Plan (STP) and Systematic Investment Plan (SIP) route of mutual funds.

The writer is chief gardener, Money Plant Consultancy