PM Modi says stock markets will hit record high on 4th June: Should you invest more?

The Union Home Minister Amit Shah, in an interview to a TV channel said, investors should buy before 4th June. As per his expectations, the markets will shoot up. The Prime Minister and the Union Home Minister are expecting market gains on 4th June. So, should you invest more money to benefit from this? Let us discuss.

Should you invest a lumpsum amount before 4th June?

After listening to the Prime Minister’s and Home Minister’s statement, many people may get tempted to invest a lumpsum amount before 4th June to benefit from the trend. However, stock market investments should not be made with one date in mind (4th June 2024 in this case). Hence, you should refrain from investing a lumpsum amount before 4th June to benefit from a one-day trend. Remember that investing in stock markets is a marathon, not a sprint. Usually, in stock markets, slow and steady wins the race in the long run.

What should you do?

You should always follow goal planning. You should work with a qualified and experienced financial advisor. They can help you identify your financial goals, make a financial plan, recommend the appropriate financial products for investment, and do regular reviews. In short, they can handhold you throughout your financial planning journey till your financial goals are achieved.

Follow asset allocation

Rather than investing in a single asset class like equity, you should build a diversified investment portfolio. You should spread your risk by investing in various asset classes like equity, fixed income, gold, real estate, etc. Every asset class in your portfolio has a distinct role to play. For example:

a) Domestic equity is for growth and wealth creation.

b) International equity is for diversification against country-specific risk and growth.

c) Gold and silver act as a hedge against inflation and a safe haven during times of uncertainty.

d) Fixed income provides stability to the overall portfolio when equity markets are volatile and going through a correction.

Similarly other asset classes like a house (real estate) is for living, and insurance is for protection.

Once you diversify across asset classes, you should diversify within the asset classes. For example, within equities, you should diversify across large, mid, and small cap mutual funds.

Invest through SIPs

Stock markets can be very volatile in the short term. Hence, rather than investing a lumpsum amount, you should invest through the systematic investment planning (SIP) route. The SIP route helps you sail through the market volatility by averaging the purchase price. With an SIP, you buy more units when the market is going down. When the trend reverses, and the market goes up, the value of your accumulated units goes up.

SIPs help you invest in a disciplined manner for the long term. With the step-up SIP option, you can increase the monthly investment amount by a percentage or an absolute amount on an annual basis.

Invest for the long-term

Investments should never be made with one date in mind. The stock market’s reaction to election results will be a one-day phenomenon which will come and go. You should always invest for the long term. By giving time for your investments to grow, you can benefit from the power of compounding. Regular long-term investments with compounding can create wealth for you and help achieve your financial goals.

Other factors will determine the stock market’s reaction

Multiple factors determine the stock market direction, and election results are only one of the factors. Some of the other factors include the two wars (Russia-Ukraine and Hamas-Israel) going on, high interest rates, upcoming elections in the US and other countries, trade/tariff wars, high commodity prices, adverse climate events, etc.

The expected earnings growth of companies and overall market valuations also matter a lot. Currently, the markets are near all-time highs and the valuations are not cheap. So, even if the election outcome is as per the market’s expectations, a combination of other factors can take over and change the market direction.

Sometimes, the markets go up in anticipation of a news event, and correct when the actual news is out. Stock markets are already at or near all-time highs in anticipation of a positive outcome from the election results on 4th June. If the news outcome is already factored in, instead of going up, what is markets stay flat or correct when the actual news is out on 4th June? You should consider all these scenarios before you deploy additional money in anticipation of a news event.

Don’t get carried away by the euphoria

A lot of euphoria is building up as we approach the election results date of 4th June. However, you should stay calm and not get carried away with the one-day euphoria of markets hitting new highs on the election results date. Instead of focusing on the one-day trend, focus on the long trend of India’s economic growth potential.

Today, India is one of the fastest-growing economies in the world among major economies. The growth trend is expected to continue in the coming years. So, if you stay invested in the long run, you will benefit from India’s economic growth potential. You should continue with your investments as it is without making any changes based on the expectations of the election results outcome on 4th June. Work with a qualified and experienced financial advisor who will recommend any portfolio changes, if and when required.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.

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Published: 28 May 2024, 02:06 PM IST