Over the past several months, investor flows into equity mutual funds have been muted. This was partly due to the corrective phase in the markets. More importantly, we heard several investors, and experts, wanting to stay on the side-lines till clarity emerges around the results of the election. Given several weeks of high decibel discussion around the polls, the tendency to remain on the sidelines – till clarity emerges – is understandable.
Now for the real question – what to do next? The following four aspects may help you.
1. Firstly, the performance of your equity portfolio is not linked to elections. The only factor influencing the performance of stocks in the long term is the growth of individual companies. Corporate growth rates in India have been steady, following GDP growth trends. Individual company earnings growth is difficult to predict, but at a collective level, it is possible to forecast growth rates of companies. Therefore, for most participants, it is better to invest through mutual funds.
2. Though governments matter, when one looks at the historical growth rate of the economy, there has been little correlation between the role of the government (something that can change every five years) and the overall economic growth. A favourable demographic profile in India is the prime driver of the long term economic growth. Data suggests it is better for the typical investor to stay invested, rather than try to time markets.
3. Thirdly, markets like the continuity of policies. One may see strength in markets in the near term, but do remember that in the long run, only corporate earnings growth matters. We have a very mature market where various participants like FPIs, Mutual Funds, Insurance companies have been steadily investing, and such trends will continue. The government is a participant and influencer but not the only deciding factor.
Though governments matter, when one looks at the historical growth rate of the economy, there has been little correlation between the role of the government (something that can change every five years) and the overall economic growth.
4. Once a big event gets over, do remember other events will come up in the future. Some will sound very positive, and others may seem negative. It is better for investors not to get swayed by either greed or fear but, stay the course. As long as you are clear about your long term goals and your investment journey, we strongly recommend you stay the course rather than get swayed by events where neither the outcome is easy to predict, nor its impact after the outcome.