Pre-poll investing in equities has offered stellar returns in the past
BusinessToday.In October 9, 2018
General elections are due to be held in April 2019. If past trends of stock markets are anything to go by, investing right before elections to earn a stellar return has never been a bad idea. Data suggests that investors rarely lose money on their pre-poll bets.
In seven Lok Sabha elections that were held over the last 27 years, whenever an investor entered the markets 6 months before the general elections and held on for 2 years, the investor made on average annualised returns of 23 per cent, with most money made in the 2009 elections when the UPA government held the fort.
While the least return has been 1.5 per cent in 1999, when the Bharatiya Janata Party (BJP) coalition government led by former prime minister Atal Bihari Vajpayee failed to win a confidence vote in the Lok Sabha).
The data strongly implies that the 27-year track record has never lead to principal erosion when entering pre-elections.
The below table depicts the CAGR (Compounded annual growth rate) made on NIFTY 50 if invested Pre-Election and held for 2 years.
General elections of 2009 had earned the highest return for shareholders, a massive 51.90 per cent. In 1991 elections, investors who stayed invested for the 30 month investment tenure (6 months pre-election and 24 months post-election) made 48.90 per cent return.
As per Sunil Sharma, Chief Investment officer, Sanctum Wealth management, "While India benefitted from a trinity of lower CAD, Inflation and Interest rates in the previous 3 years, these were amongst the best prints in recent times. In 2018, CAD was at 2.4 per cent in Q1FY19 and averaged 1.6 per cent in the previous six quarters. However, in Q3FY13, India's current account deficit was 6.8 per cent of GDP and averaged 4.3 per cent in the previous six quarters. Oil prices were high but stable in 2013 and are rising from lows in 2018. Interest rates were high in 2013 and are not very far from levels in 2018. Inflation, however, was much higher in 2013 and is relatively benign in 2018.
Hence the current macro scenario, is normalising for India, while markets continued gaining momentum earlier this year on the presumption of stable macros. On valuations, Indian equities still trade at nearly 11-13% premiums vs. 10-yr. history, however they have currently fallen nearly -12 per cent from recent highs seen in the last couple of months. For the long run, equity markets turn out to be resilient wealth generators and given general elections are about 6-7 months away, the case for investing in these uncertain times becomes a bit clearer if we take past election period performance into consideration."