Investors Should Tread With Caution As Elections Begin

The stock markets have seen a spectacular rally in the last few weeks, anticipating a second term for the Narendra Modi government. Ever since the Balakot air strikes, Indian stock markets have been on fire, thanks to hopes of a second term for Narendra Modi on strong nationalistic fervour.

Why you should be a little cautious?

The real worry for investors should be opinion polls, which have in the past had a tendency to misfire.

Let's go by simple plain logic. At the moment, it looks a possibility that the NDA might fall short of a majority on its own. It would be very difficult for the BJP to better a near sweep in Gujarat, Rajasthan, Madhya Pradesh, Delhi, Chhattigarh, Goa, Punjab, Himachal Pradesh, etc.

In UP, the BJP and its allies won 73 of the 80 seats and with an SP and BSP alliance, it is unlikely to better this tally. So, in all of the above states and also Maharashtra, it is likely to lose seats. Where would the gains then come from? Odisha and West Bengal may see gains of 10 to 15 seats together and that is not likely to be good enough.

Down south, it is unlikely that the BJP would make any gains. In fact, it might lose seats in Karnataka, where the Congress and the JDS are in an alliance. Even in Maharashtra, which has the second highest seats after UP, the BJP and its allies won 42 of the 48 seats. With farm distress in the state extremely severe, there is a high possibility of seat loss.

It is time to therefore, be a little more cautious.

The strategy to adopt

If you have invested large sums of money and have made profits, it maybe time to book profits. Banking stocks have rallied a fair bit and it maybe time to book profits here.

On the other hand stick to some that some shares that offer good dividend yields. For example, it would be a good idea to buy into stocks like Coal India and some other PSU stocks that offer good dividends.

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