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Investment strategy ahead of Lok Sabha Poll results 2024

ICICIdirect 6 Mins 24 May 2024

Five phases of the Lok Sabha elections are over, with two more to go. The poll results are less than two weeks away. The overall market has been volatile since the polling started and is expected to remain the same until the results are out. The question is, how should investors ride this wave? In this article, we look at different investment strategies that investors can adopt ahead of the Lok Sabha results.

Current Scenario of Market Indices

If you look at the market in the last few weeks, it has been volatile. However, on Thursday (23 May), the stock market closed over 1.5% higher to make record highs. In the last one month, the Nifty has been trading positively, but with a lot of ups and downs. Some sectors have led the rally in the market, while others have been struggling. In the next two sections, we look at sectors that have been driving the market high and those dragging it down.

Sectors that have seen an increase

The sectors that have seen an increase in the recent past are because of the anticipation that the companies in those sectors will do better once the new government comes in. The market is anticipating a stable government, and that has largely led to a rally in some of the sectors. Here are some sectors that have seen the highest rally in the last month.

  • Metals and Mining - 20.02%
  • Transportation - 15.22%
  • Consumer Durables - 13.04%
  • Healthcare - 10.21%
  • Realty - 9.66%

Sectors that have seen a decrease

Despite a 2.52% increase in Nifty50 in the last month, some sectors have underperformed. However, none of the sectors have fallen considerably. To give you a better picture of the underperforming sectors, we are taking a 3-month time frame. Here are some of the sectors that have underperformed or have given negative results in the last three months.

  • Media - (6.59)%
  • Software & Services - (5.75)%
  • Forest Materials - (5.46)%
  • Telecommunications - (4.44)%
  • Fertilizers - (2.93)%

Different investment strategies in uncertain times

Uncertain times, like those preceding election results, can be nerve-wracking for investors. But you need not worry. There are strategies you can employ to navigate this volatility. Here are some of the strategies that everyone can implement:

Maintain a Balanced Approach: Don't panic-sell existing investments. Stick to your long-term plan and risk tolerance. You should consider a phased investment approach. Allocate a portion of your capital now and hold the rest for post-election adjustments based on the outcome.

Leverage Diversification: Spread your investments across different asset classes like stocks (different categories) and bonds. It helps mitigate risk, as some assets might perform better than others during market fluctuations. Try and explore low-volatility sectors like consumer staples or utilities. These sectors tend to be less sensitive to election outcomes.

Embrace Systematic Investment Plans (SIPs): SIPs automate investing a fixed amount at regular intervals. This approach helps average out market volatility over time, potentially buying at lower prices during dips. Continue your SIPs even during uncertain times.

Be Cautious with High-Risk Investments: Uncertain times might not be the best moment for aggressive investments like small-cap stocks. These tend to be more volatile and react strongly to news events.

Major sectors that drive the Indian economy

Now, if you want to bet on the 'India Story', you must bet on the sectors that drive and will continue to drive the Indian economy. Here are the top sectors:

  • Agriculture and Allied Activities: This sector contributes around 18.3% to India's Gross Value Added (GVA) and employs a significant portion of the workforce. It encompasses farming, fishing, forestry, and allied activities like animal husbandry, dairying, and poultry. India is a major producer of rice, wheat, cotton, sugarcane, and spices.
  • Textiles: India has a long history of textile production and is a major global player in cotton, synthetic fibers, and garments.
  • Automobile: The Indian automobile industry is one of the fastest-growing in the world, driven by a rising middle class and increasing demand for vehicles.
  • Information Technology (IT): India is a global hub for IT services and software development, known for its skilled workforce and competitive costs.
  • Financial Services: India has a well-developed banking and financial system, facilitating investment, credit, and insurance services.

Before you go

As discussed above, the market will remain volatile, but as per experts, there will not be any major correction in the run-up to the election outcome. The market has priced in a win for the ruling party, and the sentiments will be driven by the actual number of seats the winning party gets. Investors should monitor their portfolios and avoid taking high-risk bets before the election outcome.

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