Election Results 2018 Impact on the Market: What Investors Should Do?

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D-street often shows knee-jerk reactions to election outcomes. Experts of mutual funds have predicted that the results of the assembly elections is a strong factor which will be responsible to set the tone for the equities, particularly for this week. The saying proved to be true that the markets discount for everything in advance and this could be seen with a drop of around 700 points in Sensex and 200 points in Nifty on December 10, discounting possible loss of BJP in three major states, i.e., Rajasthan, Madhya Pradesh, and Chhattisgarh.

Even after a tough neck to neck competition in Madhya Pradesh, Congress takes back the helm from the BJP, thus showing a clear win in not only Rajasthan and Chhattisgarh but MP as well. Let’s find out how it will affect the market. To understand the scenario in a proper form, we will describe the market into three phases. So, let’s get started!

1. Pre-Election
2. During Election Result/ Right After Election Result
3. Post Election

Before starting out to understand the three vital phases of the election, let’s first understand how it affects the market.

How Is the Market Affected with Such Political Events?

We all know that the share market runs on the performance of the economy of any country and that directly depends on the policies that the government make for the welfare of its people. If the corporate earnings are good, the country is bound to grow. Even when the economic institutions work as per expectations, the share market shows an upsurge. However, if these segments are influenced, there will be negative sentiments in the market, which will ultimately lead to the downfall. Curiosity among the people often creates a state of chaos which sometimes create negative emotions, thus causing volatility.

Coming back to the phases of the election, let’s find out how the market is influenced!

1. Pre Election
   Pre-election phase is the toughest of all phases for the market. It is where the market often changes its direction or goes sideways. This is because people restrain themselves from making new entry in the institutions or retail market. What they should do is either hold the capital or invest the same in some safe instruments of the market. And as soon as the election ends, investors can clearly see which party will come into power and what policies will be adopted. This helps them to see which segments of the economy will flourish, and thus they can invest accordingly.
2. During Election Result/Right After Election Result
   This is when the election are just finished where the market shows the highest of volatility. People react according to the result of the election. If the outcome is as per expectation, they react positively, however, if the opposite happens, the reaction is negative. It is the phase where the market reacts the most, either ways. This again depends on the factor that if the winning party favors the economy and propose good growth prospects, the market remains either stable or it grows, and vice versa.
3. Post Election
   This one is the most interesting phase of all. It is the time new directions of the market are decided. If the winning party’s policies seem to be enticing, then the market sentiments remain positive. With time, if the government stands on the promises it had made, the market gains an upward push, creating consistency in the market. But it may also be possible that the government doesn’t work as per the promises made during election and there is a drop in economy, then this leads to fall in the stock market.

One important thing that we must understand is that the elections is just one factor which influence the market. Other than this too there are several events which are responsible for creating any kind of sentiment in the market.

Now that we know the phases of elections and its influence, let’s reach towards the end of the discussion by stating what an individual or retain investor should do in the current situation.

Also Read: Mutual Fund Portfolios Based on Upcoming General Elections 2019

Existing Investors

Every existing investor shouldn’t fear the current market situation and use the time to their advantage. They should not panic and do away with their investments rather it’s the time where they should hold on to their investments tight and stay invested for a long-term. One thing that should be done is the task of re-balancing one’s portfolio. Check if all your investments are inline with your goals. With the change in government, there might be a few sectors which will do well, these changes should be kept in mind, and the portfolio should be revolved around them considering one’s risk profile and investment objective.

New Investors

With the help of an expert, a new investor can plan entering the market at this point in time. However, understanding the basics of the market and keeping in mind one’s risk appetite is important prior to making investments. Currently, several funds are available at discounted prices, so they can take benefit of the opportunity by starting out small with SIP investment.

Final Words

We hope this blog has helped you to understand the ins and outs of assembly elections and its effect on the investors. Plan your investments accordingly and no one in the world can stop you from reaching your set monetary goals. To seek the best recommendation as to where to invest keeping your needs into concern, call our experts at MySIPonline. We also provide answers to each query related to regular plans of mutual funds via our link provided below.