Election Versus Selection

Clearly one of the hottest topic and all eyes are on the Election of the country. We are now in the last phase and of course so many people with so many views and this Sunday, with exit polls the excitement is likely to take be taken to the next level. It has been indeed one of the very important events for the country and as it has been said the festival of democracy is going on. So, what is it that this election is being given so much of importance is being given from a stock market perspective?

  • Is it that 45 days of various phases – which is considered as one of the long periods of an election?
  • Is it that last 16 months has been so painful for the investors that the market is hunting for some strong reason for the bounce?
  • Country, after a long time, is looking for a stronger government in these challenging times?
  • Is it that Media has made it so large that its impacting everyone’s mind?

The reasons could be as many as the number of companies in the stock market. However, one thing is sure that like in the stock market, there is clearly a dearth of good options even in the election; in terms of selection!

What if?

Two questions that are making people nervous and anxious at the same time!

  • What if stock market tanks if government changes?
  • What if the current government comes back & there is a bounce? and I will miss the chance of earning a quick buck.

As Mr. Buffett says “In the business world, the rear view mirror is always clearer than the windshield” Let us have some rear view before we move on…

Look at the stock markets behaviour over the past 39 years during 13 different governments; when you are invested for the length of a normal term of government, the nervousness and anxiety should reduce.

Movement of India’s Market Under Various Governments

As is evident, equity returns do not show any significant divergence from the long-term positive trend of wealth creation across different prime ministers despite successive governments being led by so-called different political ideologies, have stuck to business and policy continuity. Policy tweaks have happened, but the direction of reforms has not been diametrically opposite.

The policy changes have been a continuous process. At times, the focus has been on infrastructure, at times on exports, on agriculture, power etc. So different political leaders have initiated steps to address issues in each area at different points in time depending on the circumstances of each time. So, policy changes across sectors with a change in political leadership is constant.

So, being a citizen, you evaluate various points before the election; being an investor, you have to invest based on various points before selection of a company. So, if you have a company in your portfolio,

  • whose business is likely to do well once the election process is over
  • whose management is capable of handling the changes in the business environment
  • whose financials will give stability even in a downturn
  • whose valuations are reasonable

then, our guess is that as an investor, your job is done well.

We are at a juncture where investors would want to time their entry linking it date election of the outcome. The point, however, is that while the timing may be important, selection of the right companies supersedes timing.

A return analysis across various time horizons and market capitalizations corroborate the age-old portfolio theory that spending more time in the equity market is far more important rather than trying to time the market.  Hence, it is important for investors to select a good company and stay more time.

To conclude, below are our comments on the thought process at the time of (General) Election and Selection (of stocks). Notwithstanding the fact, the timing of the market is easier said than done.


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