The Exit Poll 2019, grappled media houses and investors alike. Markets shot up and speculations began to emerge.
How is all of this going to impact the economy in the long term? Should an investor even be too worried about the sudden market fluctuation?
In this article, we seek to discuss how an investor is not dependent on such occasions and what should be his approach to investing.
Dalal Street has been known for quick reaction to election outcomes. During the election season, or in fact since the election preparations have begun, the market has remained very volatile (refer to the chart below).
Source: Investing.com; YTD as on May 20, 2019
However, the exit poll results on May 19, 2019, gave a respite and probably a pause to volatility. May 20, 2019, saw one of the steepest intraday gains in the market with the benchmark index climbing over 1,400 points and jumping from~37 thousand levels to ~39 thousand level.
The exit poll, has undoubtedly, cheered the market,
But is that what an investor should worry about?
Not really. At this juncture, we have a different take here. As the title suggests, an investor should not be much concerned about such events, as much as a trader.
What Is the Takeaway?
Elections or exit poll or even any geopolitical tension is short-term noise. While these factors undoubtedly have some bearing on the market, they are not the whole and soul of the market movement.
Primarily because these are short-term fluctuations
Emerging markets such as India offer vast diversity and demographic dividend. The only way of success had been the bottom-up approach. Under the approach, irrespective of noise surrounding the elections or global tension, the companies that are managed by experienced leaders have managed to attain mid-teen growth, thereby,+ creating wealth for the shareholders.
If you consider 2014, the exit poll gave the BJP-led National Democratic Alliance (NDA) 288 of the 545 seats in the Lok Sabha and the Congress-led United Progressive Alliance (UPA) 102. However, the reality was far wider with NDA winning 336 seats and the UPA, reducing to 59.
So, should you care for such factors?
Suppose you had invested in 2004, your money would have doubled by now.
Note: BSESC – BSE Small Cap; BSEMC – BSE Mid Cap; BSESN – BSE Sensex
Source: Investing.com; As on May 20, 2019
If you consider trailing one month to as on date, there is no change in the market.
Note: BSESN – BSE Sensex
Source: Investing.com; As on May 20, 2019
When Should You Invest?
As an investor, I would say we believe any time is excellent to start investing, particularly, in a growing and dynamic economy such as India.
To add to this, any phase of correction should be considered as an opportunity to add to the existing position.
A decade back, Sensex at 10,000 was considered to be high and overvalued. Today it is nearly breaking the 40,000 level. In this decade, elections came twice and the government also changed, but nothing stopped the market from growing.
The market is bound to correct automatically, and one can never shy away from it. Similarly, the market will move north if your fundamentals on the ground are strong, and a neutral investor can’t deny the fact.
For an investor, what matters is persistence and commitment to a sound investment. Thus, it is imperative that an investor conducts proper due diligence of the company or fund they seek to invest in.
What Does a Wise Investor Do?
A wise investor never tends to time the market. He/she plays his bets on the sound businesses that are sustainable and have the potential to claim market share.
It’s pretty simple, a disciplined investor who has systematically invested in the market by way of stocks or mutual funds should evolve as the clear winner.
These investors continue with their systematic plan and only use events to top-up, if there is an opportunity without any dent in the fundamental.
Experts say India’s macro outlook is currently one of the best among emerging markets and better than any time in the past decade. India is an economy that is less impacted by a headwind of a global tussle or election outcome or an exit poll.
For India, there are ample reasons to remain excited – most crucial being the fact that 200 million Indians will be entering the middle-class bracket over the next decade.
This development could translate to massive growth in discretionary spending, thereby, providing an enormous opportunity to consumption driven sectors such as automobiles, tourism and lifestyle amongst others.
Also, rising penetration of Goods and Services Tax (GST), is a shift from unorganized to organized market and digital payment system is likely to provide a fillip to the economy. In terms of infrastructure, we have all seen at least multiple places that are dug, and work is under progress for the smart city, any metro, highway and the likes.
So, to conclude, the theme is to look out for what is fundamentally valuable and put your bet on the same, instead of running behind such events. These events will come every five years or even lesser in many cases, but your investment is likely to stay for longer.
Stop getting carried away from short-term noise and remain diligently invested in fundamentally sound businesses!
Disclaimer: The views expressed in this post are that of the author and not those of Groww