Day oneThe disbelief and shock was widespread. As the first results came in, the markets tanked knowing that the BJP led NDA would not be coming back to power. Just a week back the financial sector had still been hopeful (and we have several market heavyweights on record saying this) that the NDA would come back to power, exit polls notwithstanding. But it is obvious that the opinion and exit polls understated the loss that the BJP would have to take and the market seemed unprepared to handle this reversal. But as the news sunk in and the Congress looked set to form the government, the market began to count its blessings and glass began to look half full again. It biggest worry, a hung Parliament, had been averted. As the market digested this news, it remembered that it was the Congress who had begun the reform process. This caused prices to reverse, pulling the market out of the red and ended May 13 with gains. Day TwoAfter sleeping over the facts, the market got up with new thoughts and stresses in its mind. The biggest being the role the Left will play in turning the steering wheel of the Government left instead of full speed ahead on the disinvestment and reform highway. Though its numbers are small in the total tally, the Left has the happy circumstance of being able to wag the dog instead of the other way round. The stock market bloodbath on May 14 that took the market 330 points down, was less a lack of confidence in the Congress’ ability to move the reform process, but more the nervousness of having the Left as a pillion rider. The Week AheadThe inflection points for the market over the next week will be the choice of the Prime Minster, the Finance and Commerce Ministers. Watch the markets zoom if the Manmohan Singh P Chidambaram team comes back to office. But nervousness will remain till the position of the Left and what it will extract from the Congress as the price for support becomes clear. What should you do?The markets and election on TV beat a good thriller on HBO this Thursday and Friday, but what do all these political permutations and combinations mean for you at a retail level? Says Anup Bagchi, MD and CEO of ICICI Direct: “Corporate results have been good, so from the valuations perspective the market is good. The equity markets will only go up from here”. Our advice to you does not change. We have consistently said that short term volatility looks very exciting on TV, but it makes no difference to the long term diversified investor. In fact, the Systematic Investment Plans of mutual funds bank on such events to lower your average costs over the long term. Agrees N Sethuraman, CIO, SBI Mutual Fund: “This is a good time to enter the market, but its best to wait for a few days to see who will be the prime minister and whether all parties will support that choice. However, fundamentally the economy has been great. So though there be some volatility till the new budget, the markets would definitely become positive”. If you had equity in your portfolio in a certain proportion, continue with that asset allocation. This is seconded by Rajat Jain, CIO, Principal AMC: “Investors should look at a time frame longer than one or two months. Instead of letting market movements cause panic, they should follow their asset allocation model. For small investors the Systematic Investment Plan works best”.
