The Lok Sabha election result, with the Bharatiya Janata Party (BJP) securing fewer-than-expected seats, has triggered a market correction.
Sensex today saw the sharpest fall in four years. It took the shock of an unexpected pandemic to push the market down by so much in a single trading session.
ALSO READ: India VIX jumps to two-year high as Nifty falls most since Covid-19
At 2:30 pm on May 4, while the political fortunes seem to have turned, the BJP-led National Democratic Alliance still seems set for a majority in the Lok Sabha, the lower house of Indian Parliament.
Raamdeo Agrawal believes the market will stabilise once the shock wanes. "More or less, same kind of government is going to come, with a little less bargaining power. So, let's see how they negotiate, how they manage the economy. But my sense is that negative thoughts will, max is going to happen today and maybe tomorrow and then I think things will start stabilising," Agrawal, the Chairman of the Motilal Oswal Group, a Mumbai-based financial services firm said in an interview with CNBC-TV18.
Even if there's a change in regime, and a coalition of opposition parties forms a government, the fundamentals of the Indian economy are unlikely to change in the near term.
Therefore, it may be good time for mutual investors to consider starting a Systematic Investment Plan (SIP), or increasing the monthly instalments in ongoing SIPs.
Navneet Munot, Managing Director and Chief Executive Officer of HDFC Asset Management, believes that the market may be overreacting to the election result.
Nilesh Shah, Managing Director of Kotak Mahindra AMC, sees the market reaction as a shock emerges from the sharp divergence between the exit polls and the actual results.
Many exit polls had projected an over two-thirds majority for the National Democratic Alliance (NDA) whereas the actual tally was just above the halfway mark of 272, as of 2:40 pm on June 4.
Shah believes if there's policy continuity, India's accelerated growth will continue.
Be that as it may, market experts believe the political shocks may not have a long-term impact on the direction of the market. Essentially, the equity investments made today will most likely grow.
The Sensex increased 33-fold between 1989 and 2014, even when there was no single-party majority government in India, Munot pointed out.
Before today's correction, the Indian stock indices were at an all-time high. Foreign investors had shied away from investments in Indian stocks citing sky-high valuations.
The sharp correction would offer some comfort for those who were waiting for better prices. "Mutual funds and domestic investors, they are fine. I think the real issue is that what the FIIs will do. In any case, they were selling, India was looking expensive to them and now with this slightly uncertain political environment, they will be even more emboldened to sell that's my sense," Agarwal added.
Bhavik Thakkar, CEO of Abans Investment Managers, said that this could be a good time to increase SIP investments or to make lumpsum investments.
The call is nearly unanimous: invest now for a solid retirement corpus. But where to invest?
Thematic mutual funds: A potential avenue for growth
In the run up to the election, many market experts had projected government-owned companies, banks and renewable energy companies to benefit from the Modi administration's emphasis on capital investments led by the government.
The rising income inequality, in the face of biting inflation, is widely seen as the reason for the revival in voters' support for Modi's rivals. Election watchers would remember the heated debate over inheritance tax, and wealth redistribution, between the BJP and Congress leaders during the election campaign.
Whoever becomes the next Prime Minister will have to take cognisance of the widening gap between the rich and the poor. The compulsion may result in more welfare spending, which may boost consumption among lower-income groups.
In such a situation, investors may look at thematic Mutual Funds (MFs), particularly ones focussed on consumption.
Here's a look at the long-term returns of consumption funds:
(Source: Value Research)
The bottom line for SIP investors
Despite the uncertainty introduced by the election results, experts maintain that the economy's long-term growth prospects are still positive.
For SIP investors, the recommended course of action is to remain committed to their investment strategy and consider increasing their SIP contributions to take advantage of the market's downward correction.
Additionally, experts advise against trying to time the market, emphasising the benefits of rupee cost averaging inherent in SIPs.
This strategy allows investors to buy more units when prices are low and fewer units when prices are high.
This lead to a lower average cost per unit over time.
Catch all Lok Sabha Election 2024 related coverage here
Sensex today saw the sharpest fall in four years. It took the shock of an unexpected pandemic to push the market down by so much in a single trading session.
ALSO READ: India VIX jumps to two-year high as Nifty falls most since Covid-19
At 2:30 pm on May 4, while the political fortunes seem to have turned, the BJP-led National Democratic Alliance still seems set for a majority in the Lok Sabha, the lower house of Indian Parliament.
Raamdeo Agrawal believes the market will stabilise once the shock wanes. "More or less, same kind of government is going to come, with a little less bargaining power. So, let's see how they negotiate, how they manage the economy. But my sense is that negative thoughts will, max is going to happen today and maybe tomorrow and then I think things will start stabilising," Agrawal, the Chairman of the Motilal Oswal Group, a Mumbai-based financial services firm said in an interview with CNBC-TV18.
Even if there's a change in regime, and a coalition of opposition parties forms a government, the fundamentals of the Indian economy are unlikely to change in the near term.
Therefore, it may be good time for mutual investors to consider starting a Systematic Investment Plan (SIP), or increasing the monthly instalments in ongoing SIPs.
Navneet Munot, Managing Director and Chief Executive Officer of HDFC Asset Management, believes that the market may be overreacting to the election result.
Nilesh Shah, Managing Director of Kotak Mahindra AMC, sees the market reaction as a shock emerges from the sharp divergence between the exit polls and the actual results.
Many exit polls had projected an over two-thirds majority for the National Democratic Alliance (NDA) whereas the actual tally was just above the halfway mark of 272, as of 2:40 pm on June 4.
Shah believes if there's policy continuity, India's accelerated growth will continue.
Be that as it may, market experts believe the political shocks may not have a long-term impact on the direction of the market. Essentially, the equity investments made today will most likely grow.
The Sensex increased 33-fold between 1989 and 2014, even when there was no single-party majority government in India, Munot pointed out.
Before today's correction, the Indian stock indices were at an all-time high. Foreign investors had shied away from investments in Indian stocks citing sky-high valuations.
The sharp correction would offer some comfort for those who were waiting for better prices. "Mutual funds and domestic investors, they are fine. I think the real issue is that what the FIIs will do. In any case, they were selling, India was looking expensive to them and now with this slightly uncertain political environment, they will be even more emboldened to sell that's my sense," Agarwal added.
Bhavik Thakkar, CEO of Abans Investment Managers, said that this could be a good time to increase SIP investments or to make lumpsum investments.
The call is nearly unanimous: invest now for a solid retirement corpus. But where to invest?
Thematic mutual funds: A potential avenue for growth
In the run up to the election, many market experts had projected government-owned companies, banks and renewable energy companies to benefit from the Modi administration's emphasis on capital investments led by the government.
The rising income inequality, in the face of biting inflation, is widely seen as the reason for the revival in voters' support for Modi's rivals. Election watchers would remember the heated debate over inheritance tax, and wealth redistribution, between the BJP and Congress leaders during the election campaign.
Whoever becomes the next Prime Minister will have to take cognisance of the widening gap between the rich and the poor. The compulsion may result in more welfare spending, which may boost consumption among lower-income groups.
In such a situation, investors may look at thematic Mutual Funds (MFs), particularly ones focussed on consumption.
Here's a look at the long-term returns of consumption funds:
| Fund Name | 3-year return (%) | 5-year return (%) |
|---|---|---|
| Aditya Birla Sun Life India GenNext Fund - Direct Plan | 19.05% | 19.26% |
| Baroda BNP Paribas India Consumption Fund - Direct Plan | 19.73% | 20.79% |
| Canara Robeco Consumer Trends Fund - Direct Plan | 20.67% | 21.40% |
| ICICI Prudential Bharat Consumption Fund - Direct Plan | 23.03% | 19.47% |
| Mahindra Manulife Consumption Fund - Direct Plan | 20.05% | 17.24% |
| Mirae Asset Great Consumer Fund - Direct Plan | 22.30% | 20.88% |
| Nippon India Consumption Fund - Direct Plan | 25.45% | 24.00% |
| SBI Consumption Opportunities Fund - Direct Plan | 24.67% | 21.29% |
| Sundaram Consumption Fund - Direct Plan | 18.66% | 16.02% |
| Tata India Consumer Fund - Direct Plan | 20.25% | 19.46% |
| UTI India Consumer Fund - Direct Plan | 17.28% | 16.50% |
(Source: Value Research)
The bottom line for SIP investors
Despite the uncertainty introduced by the election results, experts maintain that the economy's long-term growth prospects are still positive.
For SIP investors, the recommended course of action is to remain committed to their investment strategy and consider increasing their SIP contributions to take advantage of the market's downward correction.
Additionally, experts advise against trying to time the market, emphasising the benefits of rupee cost averaging inherent in SIPs.
This strategy allows investors to buy more units when prices are low and fewer units when prices are high.
This lead to a lower average cost per unit over time.
Catch all Lok Sabha Election 2024 related coverage here
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