"I’m sure you were not expecting the results we had today. Most of us were not either. Please read on to tweak your investment strategy due to the current scheme of things."- Vivek Banka

Political Shifts and Market Dynamics – A closer look at the investing landscape : Current Situation:

1) The Nifty is trading at around 20/21 times earnings
2) Nifty 500 is at around 24 times
3) All indices have had a massive run up on back of good economic prospects, a stable government and a continued liquidity supply on domestic money through SIP’s and retail equity investments

The Negatives:

1) Political stability is sure to reduce as the BJP will continue to be at the mercy of allies over the next 5 years limiting its power on unabated reforms etc.
2) The rude shock could make the party also revisit some policies
3) The massive vote for Congress by the scheduled castes can open a pandoras box of worries on future reservation even in the private sector
4) The valuation premium commanded could reduce as political stability decreases
5) Large portion of equity investors haven’t witnessed a major market fall and if this fall continues, there could be cascading ramifications from unwinding of long positions

The Positives that continue to stay:

1) Demographic and digitisation benefits would continue to provide tailwinds
2) In the medium to long term equities will continue to be the preferred asset class due to lower opportunity cost in terms of returns from fixed income
3) Benefits from a combination of lower interest rates and reasonable growth to continue for some more quarters

What You Should Do:

SIP’s – Presuming this is for > 3 years, please continue and don’t think of changing your stance as a market decline or stagnation will help reap benefits from an eventual rise

Lump Sum Investments – If you are already fairly allocated to equities, would recommend waiting for a few days before deciding and not take any immediate action

STP’s – If a lump sum has been staggered over a few weeks, the period could possibly be increased

Lastly do remember that equities is a proxy for human and economic growth and this incident does not change it, it could surely delay it. An urgent need to get back to basic investing fundamentals of thinking LONG TERM ( > 5 years) and moderating return expectations (12%-15%) and finally ensuring short term money needs is not invested into equities.

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