Election Series: Follow the World's Biggest Traders To See Where the Money Flows

Apr 17, 2019

Vijay Bhambwani, Editor of Weekly Cash Flow

Welcome to the second issue of my master series, How to Trade Elections 2019. I hope you are as excited about gleaning the secrets of trading profits during elections, as I am about revealing everything I have learned in my three-decade long trading career.

Yesterday, I wrote to show you how at the end of day, it's always about moneyflow and its direction.

Money inflows cause upthrusts and outflows trigger drawdowns.

Today, we talk about the magnitude of the money flow. If yesterday was all about quantum, today we talk about quality of the inflows.

Just as in any business, the 80/20 principle applies in the financial markets as well. 20% of all the players bring in 80% of the money. Watch these 20% and you get a working idea of which way the wind is blowing.

I'm referring to institutional players in the financial markets. These guys are hard-nosed, tough as nails, dollars and cents, globe-trotting investors. And they determine price trends with their sheer investment decisions due to the magnitude of the money that they deploy. On a micro level, year-on-year allocation decisions are made in January (which is the beginning of their financial year). On a macro level, a longer term view (in this case, five years) is taken around elections.

Within the institutional players, there are demarcations - domestic and overseas. While the domestic investment institutions (DIIs) can change the course of the markets for a limited time, it's the foreign investment institutions (FIIs) that swing the long term trends.

While their game plans may differ like chalk and cheese, there will be common minimum similarities in their standard operating procedures. Both keep their ears to the ground and discern which way the official policy making is headed. For example, if the crying need from the electorate is better healthcare, these institutional players will bet on hospital and healthcare stocks. If the public demands increased mobile coverage and penetration, they might bet more on cellular companies' stocks.

The other thing that we need to watch is - continuity (or the lack of it). Big money likes predictability and an absence of surprises, especially negative ones. As long as a familiar government is in place, these institutional players know where the focal points of policy makers will be. In that case, the election process is merely a comma in the entire investment exercise. Once the elections are done and dusted, the same, favoured sectors witness higher inflows.

The challenge is if there is a surprise in the elections.

The most recent example is the 2004 general elections experience. The surprise loss of the NDA government let the proverbial cat lose among the market pigeons. However, financial markets are a tensile mechanism. After the initial shock, the market invariably picks itself up, dusts its clothes off, and goes about its business as usual.

History is replete with many such examples of electoral upsets, wars, assassinations, natural calamities etc. The shock is always short lived.

As the old saying goes...the show must go on.

On that note, I must sign off for the day. My trading screens call to me. However, stay tuned tomorrow, because I will be writing in more depth about where you should be keeping your attention focused in the run up to elections 2019.

Warm regards,

Vijay L Bhambwani
Editor and Research Analyst, Weekly Cash Alerts

PS: Vijay believes elections are a crucial trading event in the life of any trader, and he will make sure you miss nothing! Keep reading, and his revelations are sure to surprise, and excite you. See you here tomorrow.

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