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The Lok Sabha election results will be announced on June 4. How much can the market swing after it? What should be the strategy for investors? - Anonymous
The market's response will largely depend on whether the results align with the expectations of the majority of investors.
That said, the market is extremely volatile and unpredictable in the short term. This volatility, however, generally smoothes out over a longer period. For example, investing for just a day in Sensex resulted in negative returns 46 per cent of the time over the past decade. Conversely, when the investing period is extended to five years, instances of negative returns dropped to less than 0.5 per cent.
A similar pattern emerges with election results. For instance, the markets reacted negatively just after the 2004 election results. But as time passed (six months to five years), the negative returns turned positive.
Moral of the story
General elections will happen every five years, accompanied by the usual predictions and speculations. But you should ignore such noise and trust in India's growth story. Here is the strategy you should follow:
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Invest in equities only for the long term (more than five years).
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Stick with your investment plan and do not alter it because of short-term market movements, like the elections or any other event.
- Do not try to time the market or make opportunistic bets.
How did Sensex react after election results in the past?
Sensex returns (%)
| Date of election result | 1D | 1M | 3M | 6M | 1Y | 5Y* |
|---|---|---|---|---|---|---|
| 06/10/1999 | 6% | -2% | 15% | 4% | -13% | 4% |
| 13/05/2004 | -6% | -10% | -5% | 10% | 19% | 17% |
| 15/05/2009 | 17% | 22% | 27% | 38% | 40% | 14% |
| 16/05/2014 | 1% | 4% | 8% | 16% | 13% | 9% |
| 23/05/2019 | 2% | 1% | -5% | 4% | -21% | 14% |
| *Annualised returns. | ||||||
Also read: General elections can influence the stock market. Here's what you should know and do
This article was originally published on May 27, 2024.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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