Stock market correction before elections: A golden opportunity to buy Indian equities
Updated: October 26, 2018 12:03 PM
A significant correction in the stock market, leading to elections, has always resulted in awesome profits for investors in a short to medium term afterwards.
While caution is always advisable on equity investments, there is no reason for investors to be pessimistic about the future of equity markets, specially at this stage when frontline indices have already corrected around 15% from their peak.
The recent sell off in equities has pulled the stock markets down to reasonable valuations after a rather long time. Since February of 2016 when the markets went for a big correction before the Union Budget, savvy investors have been waiting for this opportunity.
As usual this much-awaited correction is being accompanied by negativity and panic from various voices. While caution is always advisable on equity investments, there is no reason for investors to be pessimistic about the future of equity markets, specially at this stage when frontline indices have already corrected around 15% from their peak. The broader market has in fact seen a much higher drawdown in prices. Economic indicators are stable, crude prices have started to cool off and corporate earnings are showing traction coming back after many years.
Many investors and market participants are fearing the big trigger of general elections which is only about 6 months away. Nothing can be further from the truth if one goes by the past data. Historical data suggests that every election has ended uncertainty, given rise to hope and resulted in indices generating smart returns in the following one year. After the constitution of BSE Sensex in 1979 as many as 10 General Elections have taken place. From the share market investors point of view, all of them were very happy events as they generated positive returns on the indices one year down the line.
Moreover, a significant correction leading to elections has always resulted in awesome profits for investors in a short to medium term afterwards. If you observe the chart given below for the last five elections, returns on equities have always been positive and impressive a year down the line.
One Year Equity Returns After The Last 5 General Elections
The outstanding elections were the ones in 2009 which generated a fabulous 81% return to investors in 2010. What made the period approaching the 2009 elections a dream opportunity to invest in equities? The answer is that the markets in 2008 were in a strong bearish phase, resulting in deep pessimism and undervaluation. Election results ended the uncertainty and improved sentiments helping investors make unimaginable returns. Now under no circumstances can 2018 be compared to 2008.
Therefore, I am not predicting anywhere close to 81% returns by 2020. However, given the fact that we have corrected before the elections, the risk-reward paradigm is certainly very favourable for long-term investors. Historical trend is not the only parameter which will influence future outcomes in the equity markets. Nevertheless a favourable historical pattern combined with attractive valuations, improving micros, stable macros, copious amounts of domestic liquidity pouring into capital markets and relatively resilient nature of the Indian economy, makes investing in equities a fascinating option at this stage.
(By Ashish Kapur, CEO, Invest Shoppe India Ltd)
(Disclaimer: The views expressed herein are the author’s. Please consult your financial advisor before making any investment.)
While caution is always advisable on equity investments, there is no reason for investors to be pessimistic about the future of equity markets, specially at this stage when frontline indices have already corrected around 15% from their peak.
The outstanding elections were the ones in 2009 which generated a fabulous 81% return to investors in 2010. What made the period approaching the 2009 elections a dream opportunity to invest in equities? The answer is that the markets in 2008 were in a strong bearish phase, resulting in deep pessimism and undervaluation. Election results ended the uncertainty and improved sentiments helping investors make unimaginable returns. Now under no circumstances can 2018 be compared to 2008.
Therefore, I am not predicting anywhere close to 81% returns by 2020. However, given the fact that we have corrected before the elections, the risk-reward paradigm is certainly very favourable for long-term investors. Historical trend is not the only parameter which will influence future outcomes in the equity markets. Nevertheless a favourable historical pattern combined with attractive valuations, improving micros, stable macros, copious amounts of domestic liquidity pouring into capital markets and relatively resilient nature of the Indian economy, makes investing in equities a fascinating option at this stage.
(By Ashish Kapur, CEO, Invest Shoppe India Ltd)
(Disclaimer: The views expressed herein are the author’s. Please consult your financial advisor before making any investment.)
https://www.financialexpress.com/money/stock-market-correction-before-elections-a-golden-opportunity-to-buy-indian-equities/1361975/
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