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With exit polls predicting majority for NDA, is it right time to invest in equities, equity-oriented MFs?

Amitava Chakrabarty
General Elections 2019, 2019 Lok Sabha elections, NDA, UPA, BJP, Congress, exit polls, Sensex, Nifty, equities, equity mutual funds, equity-oriented MFs, SIP, lump sum investments, is it right time to invest

The exit polls conducted by various media agencies have predicted a clear majority for the BJP-led alliance. The BJP is predicted to win an average of 260 seats, while the Congress is expected to win 67 seats as the exit polls accord an average of 304 seats to the NDA and 118 seats to the UPA, with the rest of the seats going to other parties outside of these two pre-poll alliances.

If the actual results on May 23 are in line with the exit polls, it would be a very big comforting factor for the markets. A stable formation at the center and the continuance of NDA would mean that not only are the broader policy framework would remain consistent but the present momentum will maintain its pace. At this juncture, when the Economy is passing through some bad times in terms of financial markets as well as broader consumption slowdown, the continuation of the present government would help in restoring the growth, said Raghvendra Nath, CFA, Managing Director, Ladderup Wealth Management.

With the exit poll predictions of about 300 seats for NDA removing the overhang and providing a relief, both Sensex and Nifty have registered a robust surge.

As per the poll of polls, NDA led by BJP may easily cross the half-way mark. Markets will heave a big sigh of relief as it favours continuity and familiarity in terms of roll-out of policies. If NDA were to fall short of the half-way mark, it would have led to scramble for allies like TRS, Jagan Congress and BJD, said Ajay Bodke, CEO, PMS at Prabhudas Lilladher.

But, there is nothing much to cheer further, as markets have already discounted an NDA victory. Such an outcome will lead to markets trading sideways with focus on the onerous quid-pro-quo in terms of plum ministries (especially economic and resources) that could be demanded by BJP’s allies, said Bodke.

Assuming no material change in actual results against the exit poll predictions, we expect the market s focus to revert to fundamentals post the election and government formation. Progress of monsoon, trends in rural consumption and events in debt market will be key near-term monitorables, in our view, said Motilal Oswal Financial Services in a report.

However, despite benign inflation, well-anchored inflationary expectations and a relatively stable exchange rate, the prospect of long-term growth will depend on how Modi is able to kick-start slowing engine of consumption, revive private investments, provide fillip to anemic exports, alleviate farm distress, create adequate employment opportunities, rescue the precariously perched NBFC & real-estate sectors, generate adequate resources through better administration of taxes & divestment to fund the increasingly populist impulses.

The exit polls have been better than market expectations with the ruling party getting a comfortable majority. However, the market has been rallying for the last two days and it has factored the information to some extent. The market is likely to rally further but the rally may not be significant as there are challenges of not so encouraging earnings growth, lower liquidity, slowing economy and global challenges. There could be sector specific rally like infrastructure and banking that could do well, said Naveen Kulkarni, Head of Research, Reliance Securities.

Institutional investors will look forward to the fillip to economic growth provided by structural reforms strongly pushed by Modi like GST, IBC, RERA, DBT etc, said Bodke.

Bodke, however, stressed that individual gains of the BJP would cheer the markets. Any indication of BJP alone getting a majority can lead to a sharp upsurge in equity markets and strengthening of rupee, he said.

Motilal Oswal Financial Services, however, has warned that in the past exit polls have failed to predict the national mood accurately. For example, during the 1998 elections they accorded huge seats to the Third front while in reality NDA and UPA performed better. During 1999, exactly the reverse mistake was committed. Thus, opinion polls during that time were closer to extrapolating the past. The year 2004 being the most recent example when exit polls were predicting victory for NDA but eventual result was at variance with exit polls. However, in 2009 and 2014, exit polls got the direction of the polls right even as it under-estimated the margin of the winner.

So, before putting their money, investors should also take into consideration about any eventuality in case actual results vary from that of exit polls, putting NDA in a disadvantageous position, as the markets, which have already surged by discounting an NDA victory, may go for a major correction.

Chintan Vora, Vice-President, 5nance.com said, The Indian equity market managed to rebound strongly for consistent sessions backed by positive trend in exit-poll indicating the majority win for current government at centre, and recapitalising the stability of policy reforms for next 5 years. Given this positive probability of recurrence of 2014 election-result, it does make sense for general investors to deploy cash which have remain sidelined in recent period due to volatile global market. Nevertheless, as long as investors stay invested in quality companies led by strong financial strength coupled with good command in terms of market share, the events as such should not be barrier for investment. With growing economy due to favorable demographic, and now likelihood of election outcome is added advantage for investors to bet on superior companies. With majority of both direct equity and equity fund which witnessed a healthy correction in recent period, it now offers a perfect bargain opportunity for value hunt, and thus investors should capitalise through proper fundamental analysis on such prospects. Those investors which route their investment via equity-oriented mutual fund should be mindful to keep it as long-term commitment, and avoid taking tactical call on the basis of events as such.

Although there is no issue in continuing SIPs in equity-oriented mutual funds (MFs), but be cautious while making lump sum investments in equities or equity MFs.

For a long term investor, this could be a good time to start looking at investing more in Indian Equities. However, it is better to invest gradually right now than rush in immediately, insisted Raghvendra Nath.