Why Karnataka Election Outcome Is Irrelevant For Stock Markets?

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For the stock markets, it does not matter who forms the government in Karnataka. For months analysts have been screaming that state elections hold the key to market movement. At the moment, elections seem irrelevant and let's see why.

Markets are driven by money chasing stocks. Currently, there is so much money chasing stocks, it is hard to believe that the markets would take direction from election results.

Why Karnataka Election Outcome Is Irrelevant For Stock Markets?
Money is being pumped into mutual funds like never before. Total assets under management for the month of April, 2018 increased by 9 percent over the month of March, the most since April 2017, to a record of Rs 23.25 lakh crore in April.

Equity inflow, excluding ELSS, jumped over fourfold to Rs 11,962 crore from Rs 2,954 crore in March.

Now just imagine there is a net inflow to the tune of almost Rs 12,000 crores every month and added to this is the huge inflow from LIC and even the EPF. At every fall, there is going to be buying support. Fund managers cannot sit on cash and need to deploy money, to generate returns. 

Until a few days ago, everybody thought that rising crude posed a threat and suddenly we realize that the markets are just 3 per cent away from peak levels. Indian markets are discounting every piece of bad news and this happens only when there is plenty of money on the sidelines. 

The fact is that mutual fund inflows, will keep the market ticking higher and higher. The only problem the markets would have is when these inflows suddenly dry. At the moment that is unlikely to happen, thanks to the massive advertisement campaign by the Association of Mutual Funds in India.

So, we are likely to complete the Karnataka elections, the Rajasthan and MP elections as well and markets are likely to behave. Of course, the central government elections in 2019, has factored a Narendra Modi win. Unless, there is a massive mandate against the ruling NDA, the markets are unlikely to fall. That is one year away as of now. So for now one needs to keep investing without fear. 

After the Union Budget 2017-18, the markets saw a knee-jerk reaction, before the introduction of long term capital gains tax. Now, investors are happily willing to pay that as well. The markets have recovered almost 7 per cent, since hitting those lows of March 2018. The power of money from mutual funds will drive this market and there is little doubt on that.  

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