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Why so serious about elections? Author: Fintuned | Date: February 28, 2014

In the past few days, I have come across various articles that have shed light on the hot topic of elections. However, this is not a post bragging about Mr Arvind Kejriwal or doing a word-by-word analysis of Mr Rajnath Singh Ji’s statement ( Did you see the ji? ). However, I would just like to borrow a line from one of our famous politicians that says:

Hum Kaun Hai Mediaji?

Well, we are people who would love to help you with finance and bring up issues that are a part of the subject. Recently, a good number of investors are trying to figure out one thing: It is election time, How should I invest? While, the concern is a significant one, it is important to be understood for that the stock markets are going to react extremely to the outcome of the national elections, whatever may be the result. The probability of an extreme reaction is high also because of the uncertainty that looms over the next government with both BJP and AAP having a strong backing.

So what to do now?

Building on the above-mentioned premise, let us look at a couple of outcomes and work out its impact on the markets. Before that however, one should understand that more than anything else, markets function on the basis of perspective of its participants. It is futile to accurately anticipate the fall or rise in the index level with respect to any event because the direction and quantum of market movement is largely a function of investor sentiment.

Since I am a firm believer of Warren Buffet’s analogies, my thoughts revolve around the principle of value investing as proposed by Benjamin Graham. However, leaving the ideal talks aside ( I am working on a series of posts on this one), let us try to understand the impact that upcoming elections might have.

Scenario one: If BJP comes to power and forms a NDA stable coalition then there are chances that the stock markets might rally because of the belief that BJP is business-friendly. I would not quantify the expected rally as it would not be logical to attach a number to volatility that will be sparked by investor sentiment. In such a case, investors who assume long positions now will stand to benefit.

Scenario two: With the Aam Aadmi party gaining power and declaring its candidates from various constituencies, a high probability is that of a hung assembly. If that happens,then one should prepare for a tumultuous ride on the bourse.

A hung assembly would be perceived with a negative sentiment by the foreign investors and quite like our time that is filled by non-Indian TV serials, a major chunk of the markets is sponsored by these foreign guys. Thus, you can expect a chaotic ride on the BSE/NSE.

Okay, but answer my question: what to do now?

Now let me tell you what i think. All the news channels and god-sent analysts cannot predict the exact outcome of the elections. Similarly, the stock market analysts would be inaccurate because they base their analyses on the predictions and exit poll numbers propounded by the media. As such, it is futile to listen to a thousands of analysts and surf through hundreds of reports ( Never forget, time is money)
In my opinion, if you are confused on your investment strategies then the best option is to put money into safe instruments like banking accounts, debt instruments etc.

However if God or someone from the mafia has told you about the outcome of the elections and you can blindly trust it then be my guest, and invest in stocks.

A query on the article?? You know where to put it!!

Watch out for my next article on Investment Spoofs: A tale of submission.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of any agency, organization, employer, or any company. Fintuned Co. LLP shall not be held responsible in any manner whatsover, for any decision/action taken by readers on the basis of the content mentioned in the article. Readers are requested to exercise their best judgement before taking any decision/action. Fintuned Co. LLP shall also not be held responsible for any copyright infringement committed by the author in the process of writing and/or publishing this article and in the event any such offence is found, cooperate with necessary authorities to take remedial action


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