Increased Volatility in Stock Markets Pre-Election - Chart Of The Day 31 May 2018 - Equitymaster
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Increased Volatility in Stock Markets Pre-Election
May 31, 2018


Are we heading for a volatile pre-election year?

If history is anything to go by, it's time to fasten the seat belt.

Every year before the Indian General Election, the stock market has bordered on the extreme. Two of these elections have also coincided with one of the biggest stock market corrections in recent history.

Why this volatility though? Why should elections matter to the stock markets? Investors, both domestic and foreign, expect stability at the central government level. A stable government will be in a position to implement a clear roadmap for the future.

On the other hand, a divided mandate could mean policy paralysis and roadblocks. Markets speculate on these factors.

Also, certain sops are announced before the elections to appease the masses. That too has an indirect effect on listed companies.

Should investors be mindful of these factors? Does this one year volatility even matter for long-term investors?

It ideally shouldn't but the next year can certainly throw up a lot of opportunities if there is an irrational reaction to high-quality safe stocks.

Data Source: Ace Equity

This Chart Of The Day was published in The 5 Minute WrapUp - I Looked for Virtues of Dhoni and Tendulkar and Found a Gem of a Stock

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