This General Election (2019) feels different. The election started on 11th April and is going to get over on 19th May running over 40 days in 7 phases enabling 900 million eligible voters to cast their ballot. Largely, there has been no untoward incidents except for few minor incidences in West Bengal. The campaign also has been quite different. It is unusually quiet with zilch posters posted outside. The posters have been taken over by digital campaigns through social media. These campaigns can reach half a billion people very quickly through social media.
This shows India’s maturity in being able to conduct a free and fair election for the world’s largest democracy. We have come a long away.
The Indian General Election result will be announced on 23rd May. There is lot of anxiety because there is no wave either for or against the ruling party and there is no certainty as to which party will come to the power. The only clue we have at this point of time is from satta bazar market, which is not reliable.
The Indian economy is wobbling with subdued growth. The last 5 years of current government, has its hits and misses. The government has been the sole driver of investment in building road transport and housing for lower income people, but the private investment has largely shied away from significant investment in anticipation of the higher demand. The government has brought in structural changes including deregulation of petrol and diesel prices, DBT, GST, RERA and IBC, which will help the country in long run. At the same time, demonetisation has been a futile exercise and the implementation of demonetisation and GST has been tough on individual, small businesses and traders.
The Indian Equity market is in shaky situation. The story of mismanagement of cash flow, pledging of shares and unmanageable debt has all come out in public over the last 1 year and has impacted the ability of NBFC to raise cash at reasonable cost. While inflation is in control, the growth has not picked up. The global economy is not doing well either. UK Brexit is in unchartered territory affecting UK and European economy. The restrictive trade practices from Trump administration is putting pressure on China and global economy growth. US has used all its leverage including one of the largest income tax cut in US history. The US Equity market has had a long 10+ bull market cycle and in all likelihood the growth will slow down in coming years. Bottom-line, Indian Equity market has to pickup on its own and the market performance will be slow and gradual.
With this in background, let me discuss a question which I am being asked more often “Is there anything I can do before election result announcement to position my investment portfolio better?”.
My typical answer is, if you are in the market for long term (10+ years), use your risk profile and asset allocation strategy to start/continue investing your investible surplus in identified funds. For academic purposes, I am putting few scenarios and possible actions.
Currently, I do not have exposure to Equity market. Would entering Equity market before election be advisable?
It is not possible to predict the result of the election; hence, no favourable investment decision can be taken with fair amount of certainty before election. The timing of the market is a futile exercise. The systematic investment over long period will help build the equity asset.
I have an existing investment in Equity market but am worried that market may come down. What shall I do?
If you are long-term investor, you need not do anything. For others, a Put Option of the Nifty index will provide some level of hedging against possible loss in existing Equity portfolio. If the market were to go down, existing portfolio value will come down but there will be gain in Put Option trade. If the market goes up, Option will be worthless but existing equity portfolio value would have gone up.
I believe that the market will go up post-election. I have limited amount of money and would like to take higher exposure in line with my belief.
You can buy a Call Option of Nifty Index. You only need to pay for the option premium. If the market were to go up, the Call Option will be in money and could be exercised for gain. An important note of caution though. Wish may not become reality; hence no serious money to be invested using this approach.
Please note that, the suggestions mentioned above are dependent on the probability of an outcome, which we cannot predict with certainty, hence these strategies can only be tried with smaller investment and are mostly for learning and education. The most beneficial use case suggested above is for protecting the existing equity portfolio value without having to sell it.
The BSE Sensex has returned ~16% per annum over last 40 years. While the return in future will be lower than the historical return mentioned above because of the continuous improvement in transparency and maturity of the Indian Equity market, the Equity will be still the best asset class to handsomely beat inflation over long period.
The event based decisions are not for serious investment. The boring approach of unattached, periodic investment, invested for reasonable return will help build the wealth and asset in the long run.
The writer is a SEBI Registered Adviser and Founder of FinMyn (https://finmyn.com). He provides Fee-Only Financial Planning and Investment Advisory services. If you want to know more about him, click on https://finmyn.com/about/.