This is What the Market is Ignoring about the Exit Polls... But You Shouldn't - Profit Hunter by Equitymaster
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This is What the Market is Ignoring about the Exit Polls... But You Shouldn't

May 20, 2019

Rahul Shah, Editor, Profit Hunter

As an analyst, I am expected to be right on the ball about the near-to-medium-term outlook of the companies I track.

Of course, no one expects me to predict next year's EPS or the EBITDA margin down to the last decimal point.

Instead, there are high expectations from me to get the trend right and, more importantly, not miss the big turning points.

If I were to subject the exit polls to a similar method of assessment, the trend seems to be favouring...

Narendra Damodardas Modi's return to 7, Race Course Road

Looks like India liked what it saw of the first five years of the Modi administration and is willing to put it once again at the helm of the country's affairs.

There is of course the possibility of the exit polls getting it horribly wrong and the NDA falling way short of majority.

However, as Omar Abdullah put it, all exit polls can't be wrong.

I would agree with him.

As things stand now, there's a greater possibility of Modi coming back to power than making way for a new prime minister.

Fortunately for me, the kind of investment philosophy I believe in, I don't have to worry too much about which way the election results will go.

Irrespective of who wins come May 23rd, the reality that the stock markets are at their most expensive in recent years cannot change.

Just to put things into perspective, Sensex, the benchmark index, has been more expensive than the present levels only around 10% of the time and cheaper 90% of the time.

Put differently, if one would have invested at the current Sensex valuations in the past, it would have ended up in disappointment more often than not.

9 times out of 10 to be precise.

And I don't see any reason why it would be different this time around.

Back in 2014 when Modi first rode to power, the stock markets had one of the best years in recent memory.

However, the gains had more to do with the cheap valuations the indices were trading at than the market's endorsement of Modi.

And I hold the same view today as well. The gains or losses in the near-to-medium-term will be driven more by valuations than the person occupying 7, Race Course Road.

A wise strategy therefore would be to have a larger percentage of your allocation in cash than stocks at the moment.

If the election results end up completely contrary to what the markets were expecting, they could correct sharply, giving you an opportunity to invest more of your cash.

And if the results are way better than expectations, any euphoria will be short lived as valuations will start putting downward pressure on prices soon enough.

Playing it safe and having a bigger chunk of your money in cash and cash equivalents seems like the most sound strategy as of now.

So don't obsess with exit polls and don't fixate on May 23rd - focus instead on the soundness of your investments, and no matter who takes the seats, you can take the profits.

Warm regards,

Rahul Shah
Rahul Shah
Editor and Research Analyst, Profit Hunter

PS: We all know what a Modi win could do to the markets - but are you prepared with the right stocks in your portfolio to take advantage? Here are 4 rebound stocks that could shoot straight up when election results are announced - get them now.

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1 Responses to "This is What the Market is Ignoring about the Exit Polls... But You Shouldn't"

Binu Thomas

May 20, 2019

You said that only Modi can rebirth India to a new level.

Why not Rahul Gandhi, explain

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