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If you predict the election results accurately, you will feel nice for 15-20 days: Aashish Somaiyaa, CEO, Motilal Oswal AMC

Exit polls predict return of Narendra Modi government. Should mutual fund investors alter their strategy.

, ET Online|
Updated: May 23, 2019, 10.43 AM IST
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ET Online
Aashish P. Somaiyaa12
Exit polls are unanimously predicting the return of Narendra Modi government. Poll of polls are predicting 300 plus seats for NDA. The stock market has given a thumbs up to the verdict: S&P BSE Sensex, the market bellwether index, is up by over 1,000 points. Clearly, the sentiment has turned positive in the stock market. Against this backdrop, should mutual fund investors make any changes to the investment strategy?

“Most investors are pre-occupied with elections. We hear many investors saying that they will decide on their investments after seeing what happens in the election. But, it is a bad strategy,” said Aashish P Somaiyaa, MD & CEO, Motilal Oswal AMC. Somaiyaa was speaking at ET Wealth Investment Workshop held in Mumbai on May 17.

Somaiyaa explained his theory further: if investors are waiting for some information, they should know that the information will be disseminated to all simultaneously. So, most investors will think in the same manner and will take the same decisions. “And when you do what everybody is doing, your results can’t be any better than them. You have to be contrarian, ahead or behind. Same thinking will produce same actions and same results.”

Why does Somaiyaa believe that elections are a bad predictor of where the markets will go? Well, he had some interesting data points from the previous elections to back up the theory.

He explained: In 2004 whatever people had thought did not play out in election results. So, the markets fell by around 20 per cent. This reflected that market participants had no expectation from the new government and the market was disappointed. But, if you see between 2004 and 2008, there was a boom. Markets touched their highs during that period. Again in 2009 elections when the same government got re-elected, the markets went up by around 10 per cent post-election results. This shows that the expectations of the market from the then new government was thumbs up. But after that, between 2009 and 2013, the markets actually fell. In 2014, a very popular government won the elections but we can see the charts and find out that till 2017, the markets were at the same place.

“The core of this data is that if you are able to predict these things accurately, you will feel nice for 15 to 20 days because afterwards how it will behave there is actually no correlation. And, if you are insisted on finding a correlation, the correlation is with the previous government. Whatever is done, it takes 3-4 years to show the results and its impact on the stock market,” said Somaiyaa.
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