Elections are an important part of every democracy. In India, an election is never far away. Central elections happen every 5 years. On top of that, the state and municipal elections are constantly around the corner. Elections and the stock market have an interesting relationship. In this podcast, we will unpack this relationship.
We will answer the question: do stock markets become more volatile during elections?
We will also look at stocks that are less impacted by elections than other stocks. We will explore the reasons behind that. In the end, we will talk about how you can make your investment portfolio more fool-proof to election proof. We will also explore ways in which you can improve the returns you’re getting by paying attention to what's happening in an election.
Let's begin our discussion by looking at whether the stock markets become more volatile during elections. The short answer is yes. In fact, research has shown that during election week, stock market volatility is often double the normal rate. Iski primary Wajah yah Hai ki investors aur shareholders ko Nahin Pata Hota ki kaun si party power Mein Aayegi.
Har party ka economic agenda alag Hota Hai. Har party ka political platform alag Hota Hai. Har party के वोटर्स अलग होते हैं। But since the results of an election are fundamentally unpredictable, no one knows for sure ki election ke baad kaun si policies ko implement Kiya jayega. Therefore, the future state of the tax regime, business regulations and other relevant factors can change post election. The guesswork can lead to a lot of stock market volatility.
Yah volatility negative bhi ho sakti hai aur positive bhi ho sakti hai. For example, jab 2014 elections ka result aaya tha, tab the Indian stock market went above a capitalisation of 100 trillion rupees for the first time.
Whether positive or negative, financial volatility due to any reason can lead to stress. Therefore, let’s discuss certain actions you can take to protect your portfolio from election volatility. But before we discuss these actions, do keep in mind that the election volatility will eventually settle down. Prices mein jo election ki wajah se fluctuations ho rahe hai vo temporary hote Hain. Fluctuating prices are often the result of confused traders and investors who do not know the future direction in which the market will go. If your portfolio does drop in value because of the uncertainty around election results do keep in mind that it may gain back the value once the dust settles on the results. The loss in your holdings’ valuation will not get frozen as it is.
Having said that, playing dead is not always the best strategy. Playing dead tab hi Sahi strategy hota hai job ongoing changes reverse hone wale ho. But an election and its aftermath can actually lead to changes which can be permanent. To better protect your portfolio from election chaos, one thing you can do is ask yourself the following question.
What commodities are more fundamental than others? What goods and services will people spend their money on, first? On the other hand, what are the expenses that people will postpone in case the economy takes a temporary hit?
Aapko kuch iss tarah ke answers milenge. You will find that there are certain items such as food, petrol, electricity et cetera, that people consume regardless of political chaos. Inn item ka ek baseline level consumption hota hai and people do not go below that baseline. Therefore companies and sectors associated with these fundamental commodities will always stay more stable than companies and sectors associated with secondary or tertiary commodities.
Consumption of healthcare services will also more or less be stable across the years. Health problems prime minister kaun hai yeh dekh kar nahin aati. Regardless of who is in the seat of power, people will always spend money to recover from illness and take precautionary measures. Therefore, hospital chains and pharmaceutical companies can provide reliable returns during the chaos of an election year.
In India, gold is always considered a trustworthy commodity to invest in. Therefore, trading gold options and gold futures in the commodity market may be an intelligent way to sail over the uncertainty that is seen in other assets during the election year.
Gadgets - jaise ki mobile phones and computers - and luxury purchases - jaise ki cars and foreign trips - se associated jo expenses hote hai, wo postpone kiye ja sakte hain.
Therefore, agar election volatility ki wajah se economic slowdown hota hai toh log pahle apne luxury expenses kaatenge. Agar aapne unn companies mein invest Kiya hai jo ye luxury products banati hai, then it's possible that your holdings will decrease in value. Therefore, one way to foolproof your holdings from election chaos is to mostly invest in sectors and companies that produce primary commodities.
Another way to invest intelligently during an election year is to look at the platforms of both the parties. Are there certain things that both the parties agree on? For example, it is possible that both the major parties want to increase infrastructure spending. If this is the case, then it is highly likely that the construction sector will see a boom post the election. It might be wise, then, to invest in stocks that are associated with infrastructure.
चलिए, एंजेल वन की तरफ से आपको आज के अलविदा. ये podcast शेयर करना ना भूलियेगा - याद रखियेगा की ज्ञान बाटने से बढ़ता है । और फिर अंत में तोह financial markets एक ऐसी university है जिसमे कोई professor नहीं, सब students ही है ।