Bulls Of Dalal Street Charged Up?

As the BJP-led NDA government made for a roaring comeback forming the government at the centre for the second time, experts are of the opinion that it would boost investors’ sentiments substantially. The BSE Sensex had already touched a record high of 40,124.96 points on the day when election results  were announced.

Analysts feel, the NDA 2.0 along with the RBI 2.0 (Shaktikanta Das succeeding Urjit Patel) is very likely give the overall Indian economy a shot in the arm.

While a government with a clear majority is sure to give a sentimental boost to the markets, a lot more will depend on subsequent policy announcements.

However, which are the sectors that would yield higher returns in the next couple of years? When asked this question, market experts clearly put their bait on housing, infrastructure and healthcare.

“A strong NDA government with absolute majority will definitely give a positive push to the market. Investors favour a strong government with  stability for five years. Any government will aim at reviving the demand cycle. If similar policies continue then, the segment to look for in coming two years would be infrastructure and healthcare,” said Renu Maheshwari, CEO and principal advisor, Finscholarz Wealth Managers.

At the moment, infrastructure activities has been stalled with private players’ project implementation witnessing a stand-still. It has been observed that, businesses and consumers generally tend to hold back capex, expansion as well as spending plans ahead of General Elections.

However, post election results with infra-friendly Narendra Modi government coming back to power, infrastructure activity and off-shoot sectors like real estate and commercial development stand a good chance of improving off low base, said Rajesh Cheruvu, Chief Information Officer, WGC Wealth.

Election year is normally perceived to be a time, which brings enhanced volatility for equity markets. However, it is important for long-term investors to decide on portfolio allocation basis risk profile and financial goals rather than various return scenarios especially, event-based ones , said Devang Kakkad, Head of Research, Equirus Wealth Management.

However, it is interesting to note that the  equity market returns from the time P.V.Narasimha Rao government formation in June 1991, till the return  of Narendra Modi for the second term  did not show any significant divergence from the long-term positive trend of  wealth creation.

Kakkad said more-so, the Indian economy is at a pivotal stage. Several structural reforms such as GST implementation, insolvency laws, increase in direct tax base and increase in formalisation and digitisation of Indian economy are likely to accrue benefits from 2019 and beyond. Hence, investors should evaluate investing in equity markets with the objective of spending more investment time in the same rather than trying to time the markets.

However, Neeraj Chauhan, CEO of The Financial Mall has a slightly different take on market investments. He said, “Elections or no elections one should always invest based on their goals, risk profiles and time horizons. The external factors keep changing in this market and investors should not be bothered about it. Next two years investment can go in short-term debt funds or arbitrage funds or gold ETF.”

Historically, it has been observed that change of government impacts only in the short term. Markets and share prices are slaves of earnings and the long-term market direction is fundamentally based on economy and  corporate earnings. Therefore, whether NDA comes to power or not, equity markets will deliver returns if the corporate earnings and Indian economy continues to support, he added.

Chauhan further suggested that PPF and insurance are not good option to invest for a short-term period as both have a substantial lock-in period. One can choose arbitrage funds or fixed deposit or opt for short-term accrual funds.

Giving a thrust on equities, he said, equity is still tax efficient in India over other asset classes in the market and “we should not be worried about something, which is beyond our control. As an investor our focus should be on achieving financial goals in life and how to become financially independent. Taxation is the prerogative of government and equity is taxable in most countries including the US, UK and Australia.”

Even Maheshwari said that all long-term goals should be primarily funded by investing in growth instruments such as equity.

SIPs in mutual funds are  always the best way to invest in equity markets for a retail investor. It balances the risk of volatility and is one of the most efficient techniques for investing in equity for long term. If the said years are more volatile, benefits are even more. Interestingly, it has been observed that SIPs in falling markets  always turn out to be more fruitful. However, it must be noted that SIPs are fruitful as underlying schemes. One must choose the plan and time span of a SIP with utmost care.

“We don’t think that the themes of last five years will continue for the next two years. We may see changing consumer habits (four-wheeler segment is already showing that), we may see a shift in demand from middle class goods to mass consumption commodities, infrastructure stocks or any other theme depending upon government policies and international scenario. Schemes should not be committed for two years at one go. One-year SIP followed by a review of status at the end of the year for the next years’ investment is a better strategy,” Maheshwari said. She further added that insurance should never be used for investment as it is a tool for risk management and should be used only for that with ‘term policies’. Similarly, PPF should always be used for the limit available for the debt portion of portfolio.

Commenting on structuring an investment portfolio properly, Cheruvu said, that a portfolio can be created depending on the risk profile and the cash flow requirements of the investor. Equities generate strong returns over longer term and one needs to stay invested, withstanding volatilities and allowing the power of compounding to work. Should that be the case, investment in equity for the long term definitely makes sense.

Kakkad also gave thumbs up to SIPs saying, “SIP is the most time-tested and evergreen way of investing in market. History has proved time and again that it is humanly difficult to time the market. However, SIP provides, perhaps the most disciplined way of investing in equity markets. SIP offers investors with dual benefits of the power of compounding and rupee cost averaging, both of which are key ingredients for long-term wealth creation.”

Hence, to yield maximum benefit in the next two years, SIPs remain the hot pick of the experts. Also, the sectors that would have an edge over others remain housing, infrastructure and healthcare. Therefore, as an investor in the markets, do remember to make your choices carefully and of course remember to stay invested!

aparajita@outlookindia.com