Investing before Elections: A Smart play?

Investing before Elections: A Smart play?

The markets this year have been missing a major investment part as the investors are biased over whether to maintain current positions or to disinvest since the Elections are just 2 months away from the date.Chances of Government change rised after the Mahagathbandhan and Congress winning elections in over 4 states earlier this year.

Irrespective of all the political situation,there is one conclusion I witnessed from the previous data.Every time after the Elections the bulls have witnessed a major rally of around 10% CAGR 

Another interesting fact reveals that during the first two and half years post elections, the equity market remains extra bullish (except in 1999 when there was minority government). After every election, the markets have only created wealth for the investors.

                       

Thus in our opinion, elections offer an opportunity for investors, rather than a threat. Now let’s understand the present macro status of India.

The earnings growth estimate for FY 2019-20 remains positively driven by recovery in corporate banks’ profitability and revival in the investment cycle. The current NBFC liquidity crunch should boost corporate bank growth and profitability in the near term.

We also feel that the GDP growth rate of 7.3 - 7.5 percent may sustain, as benefits of GST, higher MSP, NPA Resolution and capex in transportation sector begin to kick in.

Inflation is also under control and CPI will average at around 4 percent, with some seasonal spikes. Core inflation will rise moderately as the output gap fills and wages begin to rise.

We also expect benchmark yields to average above 7.25 percent. The next move of MPC may be a cut in the second half of 2019. We expect the current account deficit to average around 2.5 percent of GDP in 2019. We also visualize public investment to slow as private capex picks up.

Why equity markets should perform: If we observe, the last decade (2008–2018) can be termed as a loss decade as the Sensex has generated CAGR growth of only 6 percent. This reveals that the capacity utilisation was not optimum (less than 70 percent) despite companies increased their capacity expansion during the first half of the decade by way of capex.

We strongly feel that in the next few quarters, as the demand increases, the present capacity will take care of extra production leading to more earnings of the corporate profits.

Recommendation

Every new government have to focus on few key sectors of the Indian economy to grow like infrastructure, cement, automobile, capital goods, FMCG and other various sectors will remain the key focus of any government to drive the Indian GDP growth.

The upcoming general election in 2019 is an opportunity to invest for the long term. There will be significant volatility but the major advantage of this volatility is to invest. Investing at lower levels and taking a long-term perspective for creating wealth. The pre-election phase has given an opportunity to create wealth.