After the US Elections, Look Ahead to 2021 and Beyond

Nov 5, 2020

Election days are always fun.

There'll be a lot of chatter on WhatsApp groups.

Most of us are working from home. So there'll be a lot of discussion among family members too. We saw the election fever reach its peak in 2019 when the Modi government won.

But this time it's slightly different.

Rarely have seen so much discussion on a US presidential election. Everyone is glued in. As I write this, there is a very close fight on between Biden and Trump.

People are discussing implications of the US election result in India. Will the new US president be pro-India or anti-India? How will the stock markets react based on who will wins?

But I believe US election result is important if you are interested in short-term price movements and want to benefit from it.

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What about the long-term impact on stock markets?

How has the Indian share market reacted post US elections? The table below might help.

BSE Sensex 4-Year Returns Post US Elections

Year Who won in US? BSE Sensex returns
2000 Republican 151%
2004 Republican 81%
2008 Democratic 180%
2012 Democratic 150%
2016 Republican 144%
2020 ? ?
Data Source: www.google.com

There are two clear takeaways...

  1. A republican or democrat victory doesn't matter to the BSE Sensex in the long run.
  2. Stocks markets have always delivered solid returns in the long-run.

This 20-year period has seen 5 US elections. It has also seen several terrorist attacks, a global recession, a global pandemic among other major events.

Despite this, the BSE Sensex is up 10 times.

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What does it say then about the discussions around US elections? Not much to be honest.

So what should you do in this scenario?

First, don't get swayed by short-term narratives and market movements. The markets are likely to be volatile in the coming week.

Many people get influenced by short-term events and tend to trade in and out of stocks.

Don't do that.

In fact, you can play this volatility to your advantage. There might be a good profit opportunity in quality stocks due to this short-term volatility.

You might see price declines in quality stocks despite no change in their fundamentals. That is an opportunity to buy.

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We saw the same volatility in March this year due to the pandemic. Even good quality stocks were battered despite their fundamentals being intact.

And we've seen how the Indian share market has bounced back since.

You might get a good opportunity again.

In case you do, your focus should only be on quality stocks. These are businesses with a sizeable opportunity ahead of them.

These businesses can earn above average rates of return on their capital. Their management is competent with an established track record.

My video might help you to identify such quality stocks...

My colleague Richa also recently gave a detailed pointer on what to look for in a stock.

Via this template, Richa has zeroed in on her top stock for 2021. It satisfies all the qualities I've mentioned.

And I'm confident, no matter who wins the US elections, this stock will do well in the long run.

Warm regards,

Girish Shetty
Girish Shetty
Research Analyst, Hidden Treasure
Equitymaster Agora Research Private Limited (Research Analyst)

PS: Get the details of Richa's top stock for 2021.

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