Elections Results 2014: Why it's a petrifying event for equity investors?

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Elections Results 2014: Why it's a petrifying event for equity investors?
There's no other event that moves Indian stock markets the way Election results do. In May 2009, the sensitive index (Sensex) of the Bombay Stock Exchange (BSE) rose an unprecedented 2,099.21 points, or 17.24 percent on the day election results were announced and had to be closed as the higher end of the circuit filter limit had been breached. Nobody expected the Congress led UPA to fare better than in 2004.

In 2004, it was believed that the NDA would return back to power, but, the Congress romped home with the help of the Left parties. The fact that the Left Parties were supporting the UPA government saw massive selling, as these parties are not known to be investor friendly, resulting in huge losses to investors.

Result day on May 16, 2014 is likely to witness immense bouts of volatility

It's a massive game in which you could erode or create wealth on the day of the results - that is May 16. Investors have already begun going short and long in the market and bets would increase as we head for the election result outcome.

If you are long, particularly in the derivatives market, you could see your capital erode, if the results are not as per expectations. The markets are clearly factoring NDA to reach the 230 seats and if it is significantly short of this number, expect a slide in the markets.

It's important to note that markets are entering the results hitting several historic peaks and hence they have already factored a NDA win. Any disappointment can lead to a major sell-off. In fact, if that happens, remember that it takes years to recoup the losses and sometimes you may not even breakeven.

Remember the 2008 era before the collapse of Lehman Brothers. Investors have not yet recovered their money in stocks like Punj Loyd, JP Associates, HDIL, Unitech, DLF, Tata Steel, Hindalco, and several others. It's been almost six years and all of the above stocks are not even close to their 2008 peaks.

Therefore, it's best to "think before you leap" ahead of the major event. Having said that, it's also important to remember that you cannot make money without taking a risk.

If you are on the right side of the outcome, you are likely to make money and that too large sums on May 16.


Read more about: election, sensex
Story first published: Saturday, May 3, 2014, 10:02 [IST]
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