How Lok Sabha Election 2019 results tomorrow can impact your investments

May 23 will be a busy day for political parties as well as stock market participants and investors should keep a close eye on the Lok Sabha election 2019 results, says Rajesh Cheruvu, CIO, WGC Wealth. Investors prefer stable and consistent policy environment for expansion in economic and business activity. Significantly, exit polls have been suggesting a decisive mandate, however, final outcome could deviate from exit poll predictions given their smaller size of sample," Rajesh told Zee Business Online. Hence, investors must closely watch tomorrow’s outcome and see how they can take advantage of the poll results announcement and increase their wealth or devise ways to ensure they do not lose money! 

How your investments can be effected?

Sanjiv Singhal, Founder and COO, Scripbox told Zee Business Online that the performance of your equity portfolio is not linked to elections. "The only factor influencing the performance of stocks in the long term is the growth of individual companies," he said, while adding that corporate growth rates in India have been steady, following GDP growth trends. 

"Individual company earnings growth is difficult to predict, but at a collective level, it is possible to forecast growth rates of companies. Therefore, for most participants, it is better to invest through mutual funds," Singhal said, thereby providing a big positive takeaway for investors even before the results day has even dawned. 

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He added that though governments matter, when one looks at the historical growth rate of the economy, there has been little correlation between the role of the government (something that can change every five years) and the overall economic growth. He said that a favourable demographic profile in India is the prime driver of the long term economic growth. Singhal suggested investors to stay invested, rather than try to time markets.

"Markets like the continuity of policies. One may see strength in markets in the near term, but do remember that in the long run, only corporate earnings growth matters. We have a very mature market where various participants like FPIs, Mutual Funds, Insurance companies have been steadily investing, and such trends will continue. The government is a participant and influencer but not the only deciding factor," he said. 

Singhal also advised investors to not get influenced by the reactions that follow. 

"Do remember other events will come up in the future. Some will sound very positive, and others may seem negative. It is better for investors not to get swayed by either greed or fear but, stay the course. As long as you are clear about your long term goals and your investment journey, we strongly recommend you stay the course rather than get swayed by events where neither the outcome is easy to predict, nor its impact after the outcome," he said.

Should you move equity investments to debt to avoid risks?

Rajesh Cheruvu said that severe volatility in the event of fragmented mandate or falling short of simple majority for a single party cannot be ruled out. He said that in the past, such volatility has not lasted for long and economic policies of various political parties in India, have not been meaningfully different but the pace and quality of execution has been. 

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"Hence, longer term average equity returns are in sync with the nominal GDP growth. It makes us to believe, that investors are better off being closer to their agreed equity allocation basis their risk appetite. Major events would lead to shorter term volatility but have not impacted the longer term return trajectory meaningfully. Equity returns are primarily driven by their underlying earnings. Hence, suggest to stay invested. Instead, the event of sharp volatility, led by disappointing outcomes should be used as an opportunity to increase allocations, as valuations get cheaper by pricing in such outcomes," he added. 

Should you indulge in intra-day trading on May 23?

"Intraday volatility tend to be quite high on eventful days, risk reward might not be favourable for individual investors. Hence, advise to stay away for such trades on election results day as most of the results get announced post 4pm and till then it will be trends only," Rajesh advised.