India Elections 2024: ‘Election-Proof’ Sectors Where You Can Invest In Market Volatility

Election results have a huge impact on stock price movements. The results, if not in sync with investors’ expectation, often leads to market volatility, further fraying on investors’ nerves.

As of 5:00 pm on June 4, 2024, the BJP-led NDA is leading in about 294 seats while the INDIA bloc’s lead crossed 232 seats defying all exit poll predictions, as counting is underway across 543 seats.

Despite the exit-poll day high, and downward rally of election results day, many investors may not be comfortable with the cut-to-cut risks involved with stock market trading.

Also Read: Blood Bath At Bourses: Nifty, Sensex Suffer Huge Loss; Here're Tips For Investors

“Investing during uncertain times like elections can be very risky,” says CA Isha Jaiswal.

In such a case, what are some ‘election-proof’ investments that can mint your money despite the market turmoil of E-day?

Says Ravi Jain, co-founder and managing director, Blostem – a financial service providing platform: “Every investor needs to have proper asset allocation in place to generate long-term sustainable returns along with stability in uncertain political scenarios. To achieve so, one should have a mix of a long-term equity portfolio and smart fixed deposit portfolio.”

So, what are investment options that tend to be less impacted by political uncertainties or election cycles?

According to Aditya Goela, CFA, co-founder of Goela School of Finance, “Defensive Stocks are less sensitive to economic cycles. These would be well-established, financially stable companies with a long track record, such as Hindustan Unilever (HUL), ITC, HDFC Bank, Kotak Bank, ICICI Bank, and Axis Bank.”

So, here are a few ‘election-proof’ investments can help you protect your money.

Diversified Mutual Funds: There is an inverse relationship between the stock market and bonds’ yield. As these funds invest in a mix of stocks, bonds, and other securities, they help in spreading risk across different assets.

Bonds: Government and high-quality corporate bonds are generally less affected by short-term market volatility.

Blue-chip Stocks: Companies with a long history of stable earnings and dividends will be less affected by political changes. These stocks may crash in the short term, but eventually, they will provide steady returns.

Real Estate Investment Trusts (REITs): REITs that invest in stable, income-generating properties can provide a steady income stream.

DIVERSIFICATION

Incidentally, diversification across different asset classes can also help you create a portfolio that is resilient to political changes, including election outcomes.

Says Goela: “It is important to stay diversified and stay on long-term goals. Asset allocation should be 70 per cent in equity and 30 per cent in fixed income securities, but investors should build a resilient portfolio regardless of political changes.”

When bond yields rise, stock market returns tend to fall, and vice versa.

Jaiswal adds: “This is because higher bond yields make equity investments less attractive, as investors can earn higher returns from bonds. Conversely, when bond yields fall, stock prices tend to rise as investors seek higher returns from equities. By spreading investments across stocks, bonds, real estate, and other assets, investors can reduce the impact of any single event on their portfolio.”

SPECIFIC SECTORS

Some of the sectors that are less impacted by political uncertainties or election cycles include consumer staples, utilities, healthcare, IT, and defensive stocks.

Says Goela: “Consumer staples companies like Hindustan Unilever, Avenue Supermarts, Dabur Ltd, Tata Consultancy Services, Sun Pharma, and Cipla Ltd provide essential goods and services, ensuring consistent demand. The healthcare sector, including pharmaceutical companies like Hindustan Unilever, Sun Pharma, and Cipla Ltd, is relatively insulated from economic cycles.”

HISTORICAL TRENDS

The election-induced market trends tend to change as rapidly as the uptick of vote counts on results day. Historically, the Indian stock market has experienced a pre-election rally, followed by post-election volatility, and long-term impact.

“In 2004, on election day, the Nifty fell by approximately 12 per cent, however, the next day it bounced back by 8.3 per cent. In the next five days after the election results, the index was nearly up by 16 per cent. This proves that the volatility is short-term and in the long-term, investors should use these opportunities to buy on the dip,” says Jaiswal.

“In the 2014 general elections, the BSE Sensex witnessed a significant rally in the three months leading up to the election results announcement but saw a sharp decline after the results were announced,” Goela adds.

HOW TO NAVIGATE SUCH PERIODS?

According to Goela, diversification is the key.

“To navigate these periods, investors can maintain a diversified portfolio to minimise exposure to any one sector or stock, focus on the underlying fundamentals of companies, adopt a long-term perspective, and identify sectors less susceptible to election-related volatility, such as consumer staples, healthcare, and IT,” Goela says.

As India is entering a goldilocks economy scenario, some of the sectors that are poised to do well include power, renewables, manufacturing, defence, railway, and fintech, among others. Typically, the Indian economy tends to grow at a good pace of growth irrespective of political outcome.

“However, a stable and strong government does help in the acceleration of growth as witnessed during 2004-09 and 2014-24. Any short-term panic tends to be an opportunity in the market as was witnessed in 2004,” Jain adds.