We all know that the stock market is all about the sentiments and is affected by a multitude of factors. The elections are one of the prominent factors that lead to volatility in the market. With the General Elections 2019, 5-6 months away, it is not surprising to see the slight fear cropping up into the minds of the investors. This is because they are not sure whether the economic policies of the government coming into the power next year would be positive for the market or not.
Now, the question that arises here is why the investors give a lot of prominence to the elections while investing before taking any investment decision? Come on; let’s dig out the important facts or reasons as of how elections impact the investment portfolios of the investors.
Stock Market and Elections – How Are They Related to Each Other
It is a known fact that whichever political party comes into the power in the General Elections 2019, they would be responsible for framing the prominent economic policies of India. Any major economic policy or decision taken by the government may affect the share prices (it can be positive or negative). For instance, any favorable policy decision undertaken by the government will drive economic growth and vice-versa.
The investors remain highly concerned leading up to the elections. The question that pops out here is WHY? They fear that the economic policies carried out by the ruling government till now may be modified or scrapped if the new government comes into the power. It leads to a sharp increase in market volatility and the investors may become uncertain during the election period.
Stock Market Performance During Elections
To better understand the stock market movement during elections, let us have a look at the Sensex performance for the year 1999 to 2014 in which the elections took place:
From the above table, it can be quite easily determined that in the year 1999, 2004 and 2014, the stock market rallied after the election results. Thus, it can be said that the market generally remains positive during the elections. If we look at the historical data, then the stock market may rise in the next General Elections 2019.
A very important point to note here is that it is not the elections that impact the stock market by the economic decisions taken by the government. The elections may impact the market for the short-term, but in the long-term, it is the policy decisions framed by the government, which matters the most.
What Should be Your Investment Strategy?
One of the most important lessons learned here is that during the election year, it is important that any kind of volatility in the stock market or changes in economic policy must not affect the investment decisions of the investors. If the investors are uncertain, then it makes a better sense to remain invested for the long-term. One of the best strategies here is to diversify a portfolio and not try to time the stock market.
Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.