‘Stock market rally’ from June 4, predicts PM Modi: Should stock, mutual fund, gold investors tweak portfolios before Lok Sabha election results?

Seasoned stock market traders to newbie mutual fund investors, all are waiting for June 4, 2024, to know the results of the Lok Sabha elections. In a recent television interview, Prime Minister Narendra Modi said that the stock market would have a rally once the election results are out. On whether the equity market was displaying nervousness because of concerns over election outcome, Modi said, “You see, the day election results come out, and throughout that week, those who punch trades will get tired.”

Barring other factors, a lower voter turnout in the last few phases of the ongoing Lok Sabha Elections 2024 has made the Indian market jittery because of rising uncertainty over the poll results. Market insiders anticipate the stock market to remain turbulent and highly reactive to the news until the conclusion of the elections. A few days back, Union Home Minister Amit Shah asked investors to buy the dip before June 4, 2024, as the market will shoot up after that. He had also said that it was unfair to attribute to the elections.

Lok Sabha election result on June 4, 2024: What should stock market, mutual fund, and debt investors do?

Now the question is what should investors do till the election results are out? Is it time to accumulate more stocks or avoid the volatility and play it safe? ET Wealth Online spoke to experts to figure out the right move for investors ahead of the results of the Lok Sabha Elections 2024. Here is what you need to know irrespective of whether you invest directly in the stock market or through equity mutual funds or invest in other asset classes such as gold or debt mutual funds.

Stock market strategy now ahead of the Lok Sabha election results 2024

Vivek Goel, Joint MD, Tailwind Financial Services, says, “Review stocks and mutual funds in your portfolio for potential profit booking, especially in segments that have seen sharp run-ups, to manage event risk.”

Amit Goel, Co-Founder & Chief Global Strategist of Pace 360, a SEBI-registered multi-asset PMS and AIF firm, says it is a great opportunity to sell many of the stocks trading at triple-digit PE ratios.

Investors who are uncertain about the election results should consider splitting new investments into two parts: invest one part now and the other part after the results are announced, says Vikas Gupta, CEO and Chief Investment Strategist, OmniScience Capital.”Continuous investors with a higher risk appetite can start investing now and add more later. We are positive on sectors like artificial intelligence, cloud, and digital transformation, regardless of the election outcome. Power, banks, railways and defence are promising in the long -term but could become volatile immediately after the results. A long-term focus of more than five years is crucial when investing in equities,” he says.Sandeep Raina, Executive Vice President, Nuvama Professional Clients Group, says, “As per market sentiment, the government’s efforts are yielding positive outcomes and will continue to do so. Key sectors such as renewable power, shipping, ports, defence, and infrastructure are poised for growth, which will, in turn, benefit the overall economy.”

Sectors to invest now ahead of Lok Sabha election results in 2024

Investors must exercise caution if the market remains volatile in the days leading to the result day. Though a dip in stock prices could be an opportunity for many, investors should make disciplined investment strategies and avoid impulsive decisions, say experts.

“Investing during market uncertainty can yield opportunities due to mispriced companies,” says Gupta. “Focus on high-quality growth companies that are currently mispriced. Build a diversified portfolio across different growth vectors.”

What can investors buy right now? Vivek Goel of Tailwind Financial Services says, “Market movements over the past four to six months have been driven by expectations of the current government continuing to stay in power. Sectors like infrastructure, capital goods, and defence are likely to remain favourable due to anticipated policy continuity in government spending.”

Lok Sabha elections 2024: Investors must be cautious: Don’t keep your hopes high

However, investors should not keep their hopes high as “historically, post-election results have not significantly impacted markets,” says Vivek Goel. “With the market already pricing in another term for the current government, there’s limited upside is expected directly from the results.”

Echoing the same, Amit Goel of Pace 360 says, “It is true that if the BJP does well in the election, the market may go up further. However, that will be just a short-term bounce, and the markets will eventually come down. Therefore, we do not recommend investors buying stocks or equity mutual funds at current levels.”

Lok Sabha elections 2024: What should mutual fund investors do now?

If you usually invest in mutual funds to fulfill your long-term goals, short-term volatility will not impact your mutual fund portfolio in the long run due to rupee-cost averaging. “So mutual fund investors should continue their SIPs irrespective of the results,” says Gupta.

What should be the strategy for your debt investments ahead of the Lok Sabha elections results 2024?

The debt markets will also be influenced by the results, as the current government’s commitment to fiscal consolidation in February’s interim budget provides comfort, says Vivek Goel, adding, “If the BJP does not win a majority or if the INDIA alliance wins, cyclical sectors may see corrections in favour of defensive sectors until there’s clarity on new policies.”

Deepak Agrawal, CIO-Debt, Kotak Mutual Fund, says the current government has focussed on keeping the fiscal deficit in check. If the government comes back to power, the market will be assured of continuity of this stance and the fiscal deficit for FY25 and FY26 may continue to be pegged at 5.1% and 4.5%, respectively. “This would result in a relatively low supply of G-sec instruments. In addition, the current government has managed overall inflation, particularly food inflation, very well. Lower inflation expectation, lower supply of G-sec, stable currency coupled with index flows should result in 10-year breaching 7% and we may see 10-year close at 6.90% levels,” says Agrawal.

Gupta suggests that debt investments should be in AAA-rated bonds, “leaning towards the short term before the results,” with a reallocation to long-term bonds once a stable government looks likely.

Amit Goel says they are extremely bullish on 30-year Indian government bonds and see these as a great investment opportunity for the next two years.

Lok Sabha elections 2024: Is it time to invest in gold as it glitters?

Gold has shown strong performance in the last few months, rallying over 30% from lows to highs last month. If you are planning to enter the market aggressively now, it could be a challenge.

Amit Goel says, “We are long-term bullish on gold but do not recommend buying it at current levels.” If you wish to invest a bulk amount, evaluate the current market condition carefully.
Atul Parakh, CEO of Bigul, says, “Monitoring global demand, supply dynamics, and factors driving investor sentiment towards gold is also necessary.”

Vivek Goel says, “Gold is a haven with limited correlation to equities, although its price is more influenced by global factors than domestic events. For risk-averse investors, liquid funds or gold ETFs can be considered to mitigate volatility from event risk.”