The India Story: Lok Sabha Elections vs Equity Markets

December 28, 2018 Financial , India , Opinion , OPINION/NEWS , OTHER

AP photo

 

By

Siddhartha Rastogi

 

 

Last week’s note reflected how Indian GDP is poised to grow faster in Q3 and Q4 for FY 19. If the economy grows faster, capital markets should do well.

 

 

With recent State elections, one also saw how capital markets are effectively driven by economic growth rather than election outcomes. A similar outcome was seen in the US Presidential elections where the election outcome was 100% opposite to what markets were thinking and despite that, US equity markets rallied post 2016 Presidential outcome.

 

 

I have always been a strong advocate of Earnings driving the stock prices. In my opinion, the only thing which should matter to investors pertaining to equities are:

 

 

earnings of companies, 

quality of earnings and 

consistency of earnings

 

 

That’s what drives the stock market and stock prices in the long term. However, in the short term, i.e. for periods less than two years, the only thing which drives the equity market is News, which includes, events, perception, macro factors, amongst others. No one knows how one would react to news and thus stock prices can move in any direction.

 

 

Generally news doesn’t make money but Lok Sabha elections in India is one such event where the probability of making money through this event is very high.

 

 

Historically whoever has invested 6 months before the general elections and have held on to Sensex for the next 18 months, i.e. an investment horizon of 2 years, has never lost money.

 

 

Elections Vs SENSEX
6 months before Lok Sabha Election Sensex Values 18months post Lok Sabha Elections Sensex Values Returns Absolute (%)
30-May-89 692 27-May-91 1324 91%
17-Dec-90 1188 13-Dec-92 1860 57%
2-Dec-95 3035 28-Nov-97 3618 19%
27-Aug-97 4085 24-Aug-99 4792 17%
9-Apr-99 3423 5-Apr-01 3676 7%
12-Nov-03 4998 8-Nov-05 8353 67%
14-Nov-08 9267 11-Nov-10 20937 126%
13-Nov-13 20194 10-Nov-15 25743 27%

 

 

Investors should choose a portfolio of high quality, consistently growing companies both in terms of revenue and PAT growth with clean accounting practices and no political linkage to make handsome profits.

 

 

Thus Siddhartha Rastogi says, “Irrespective of the political outcome, Indian economy will grow and Patience with Quality will yield returns.”

 

 

 

 

Siddhartha Rastogi

Siddhartha Rastogi

Siddhartha was born to a learned middle class educated family in Semi Urban India. His father was an extremely honest man who because of his honesty had to pay the price in corporate world. Mother is a determined woman who ensured that children are being well taken care off. After a few years of birth, doctors called Siddhartha, a slow child having flat foot. He would fall more than he could walk. Determined mother ensured all therapies for her son to come out strong to fight the world. Siddhartha joined swimming when he was in 6th standard. Seeing other children of his class, he jumped in 10 feet deep pool and learnt swimming on his own, the very same day.

From that day there was no looking back. He topped his city in 12th and went to score highest in his B school exams. During his profession as banker, he became youngest branch manager of a MNC bank managing their biggest wealth branch in the country. There he found love of his life and got married. His love of his life emerged in the form of his daughter who completely changed him for good.

Siddhartha Rastogi is Director for a boutique Investment bank in India.

Siddhartha is a forward looking thinker & writer who has written a book on decision making. 8 Simple steps to effective decision making.

He writes on various social and current issues via his blog and can also be found on twitter.

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