#5 Reasons Why You Should Start Investing in the Markets before General Elections
'History indicates that investments made in a volatile year have a tendency to give above-average returns over the medium-to-long-term'
The Indian stock market is been witnessing the bull-run for quite some time now. Since the last Loksabha election in 2014, benchmark indices both BSE's Sensex and NSE's Nifty have experienced an upward trend with average growth of more than 40 per cent.
As the 2019 Loksabha polls are just around the corner and markets will soon observing elections-led volatility where investors generally prefer being bearish. But let not the polls dampening your bullish mood.
Entrepreneur India in conversation with broking houses gives you five reasons to start investing in the stock market before nation casts its vote.
Away from the Euphoria
There is never a specific timeline to start investing the equity market. Investments should be based on goals and not specific events such as elections or budget. Hitesh Agarwal, EVP and Head of Research, Religare Broking opines the investments have to be spread out systematically at regular intervals, rather than trying to time the market.
Nevertheless, he admits that even as the currents valuation of the market is at a marginal premium to its mid- and long-term averages, it is nowhere close to the euphoric territory. Thus, the current time is a good one to take the systematic plunge into equities.
"We believe that going forward, the premium valuations of the Indian market is likely to sustain as India remains the fastest growing major economy in the world and the corporate earnings growth is also likely to witness a marked turnaround over the next few quarters," he added.
India's Growth Story
In its World Economic Outlook, IMF predicted that emerging Asian countries including China will grow at 6.3 per cent. However, on the other hand, the Indian economy is forecasted to grow at 7.6 per cent.
Mayuresh Joshi, Fund Manager, Angel Broking Ltd claims that the consumption story of India is likely to remain intact, irrespective of the government that comes to power post the elections.
"Rural and urban consumption is expected to get a boost in the budget and that it is likely to sustain even post the event. The domestic growth story will happen despite the global GDP coming under pressure. This could lead to a positive re-rating of Indian stocks, irrespective of the election outcome," he shared.
Last year, Indian markets registered healthy correction and the third quarter earnings for financial year 2019 looks quite impressive which make company's valuations seem attractive.
Across the sectors, Foram Parekh, Fundamental Analyst – Equity, Indiabulls Ventures notes that large-cap companies have managed to report more than 10 per cent volume growth despite the higher base which indicates consumption is picking up within the nation.
"This consumption pattern will continue on account of lower oil prices, lower inflation and stable rupee. Irrespective of the government at the helm, for at least the next two years India will not face growth issues on account of the reforms taken by the present government," she commented.
Interest rates cut-down
As per official data released for last month, the wholesale inflation has eased to 3.80 per cent while retail investment was observed to be 4 per cent, both below RBI's projection rate. Hence, brokers feel the RBI will cut the interest rate by 50bps.
Parekh points out that interest rate cut will spur the demand in the halted interest rated sensitive sectors such as auto, real estate and banks.
State Elections Result
The present ruling party – BJP has lost three state elections last year, which can create uncertainty whether they will come to power against in the upcoming general election.
In the previous general elections of 2014, Tejas Khoday CEO and Co-Founder FYERS quoting the INDIA VIX (NSE Index which measures volatility in the stock market) say volatility went from 12.5 to 39 in less than 3 months. After the election, the volatility went down substantially. Considering the looming uncertainty ahead of us, it is likely that the markets are going to become very volatile again.
Having said, Agarwal from Religare says history indicates that investments made in a volatile year have a tendency to give above-average returns over the medium-to-long-term.