Election results: Markets crack 5%! Is today's fall an opportunity for long-term investors? Experts advise strategy

Indian markets witnessed a sharp selloff on Tuesday, June 4, erasing all of Monday's gains as early trends indicated that the Lok Sabha election results could be tighter than exit polls had predicted.

This unexpected development caused panic among investors, reducing their wealth by approximately ₹26 lakh crore in intraday deals to around ₹400 lakh crore from ₹426 lakh crore in the previous session.

The BSE Sensex tanked as much as 4,131.44 points or 5.4 percent to its day's low of 72,337.34. Meanwhile, the broader Nifty crashed 1,263.3 points or 5.4 percent to its 22,000.60.

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Meanwhile, in the previous session on Monday, the Indian stock market experienced its biggest single-day rally since January 2021. Investors bought across the board, buoyed by exit poll results for the 2024 Lok Sabha elections predicting a third consecutive win for the NDA. The Sensex surged by 2,507.47 points, or 3.39 percent, closing at 76,468.78, while the Nifty 50 rose by 733.20 points, or 3.25 percent, to settle at 23,263.90.

Despite Monday's significant rally—reportedly the largest single-day surge since January 2021—investors faced a stark reversal of fortune, driven by uncertainties surrounding the election outcomes.

The primary reason for this sharp decline is the disappointing early trends in the Lok Sabha election results, which are not in sync with the optimistic exit poll predictions. This discrepancy has unnerved investors, resulting in a significant market downturn.

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Broader market indices also suffered, with both the BSE Midcap and the BSE Smallcap indices plummeting around 7 percent each in intraday trading. Sectoral indices, apart from Nifty FMCG, were predominantly in the red, with Nifty PSU Bank bearing the brunt of the losses, down by 15 percent. It was followed by the Nifty Oil & Gas index, down almost 11 percent, and Nifty Metal, down 10 percent. Other indices including Nifty Bank, Nifty Financial Services, Nifty Auto, and Nifty Realty also lost between 4-8 percent each.

However, Nifty IT was down just 1 percent and Nifty FMCG was flat but in the green.

As the markets continue to decline, market participants are advised to exercise caution and closely monitor the election results and their potential impact on the financial markets. With uncertainty looming, experts weigh in on strategies to weather the storm and seize opportunities amidst the turbulence.

Read here: Adani stocks fall up to 18.5% amid tighter election race; m-cap falls 1.35 lk cr

Atul Parakh - CEO, Bigul

Investors should avoid knee-jerk reactions and reassess portfolios based on risk profiles. Quality stocks at discounted valuations are opportunities for long-term holders. However, brace for volatility until the election results provide clarity. Diversification across asset classes remains crucial. Consult financial advisors to review portfolios. Once the political landscape settles, the market could find support if a stable government emerges to drive economic reforms.

Vinnaayak Mehta, Founder of The Infinity Group,

The market is projected to remain volatile and highly reactive to news until the election results are finalized. Political analysts suggest that the ruling party's seat count may stagnate compared to previous elections, which has contributed to the negative sentiment. Any deviation from the projected poll results or seat count could further affect market breadth, particularly in these uncertain times. Consequently, investors should exercise caution and make well-informed decisions during this period.

While benchmark indices may occasionally rise, fluctuations in trading volumes and open interest indicate potential weakness. Nonetheless, there are opportunities in the mid and small-cap sectors, which offer significant growth potential. Carefully selecting the right companies and adopting a flexicap strategy based on the businesses in the portfolio can help maintain a balanced investment approach.

Read here: PSU stocks tumble as early trends show mixed results; BSE PSU down 8%

Since market movements are cyclical, errors during corrections can lead to substantial losses for inexperienced investors. Therefore, thorough research and effective risk management are crucial before making any investment decisions. Rushed or speculative investments could result in serious financial repercussions.

Divam Sharma, Founder and Fund Manager at Green Portfolio

It is neither easy nor sustainable to make money from such election-related market movement speculation. Any corrections and falls should be used as an opportunity to buy fundamentally robust companies.

This is not the time to be experimental and invest in new-age companies at sky-high valuations. I am sure we will see many discrepancies uncovered. We have already seen this with an IT company. Many corporate governance issues will be uncovered, and I won’t be surprised to see huge corrections in many stocks as a result. As individual investors in particular, it’s a time to sit on the sidelines. Don’t try to speculate, and wait for the markets to digest the outcome.

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We look at opportunities from a valuation perspective. Election impact will be temporary, if any. Election-induced rallies and corrections will affect the broader markets but there shouldn’t be a lasting impact on fundamentally strong enterprises. Investors can look at cutting the froth and booking profits for inexpensive companies that are discounting long-term high growth if political uncertainties and surprises evolve from the results.

Anirudh Garg, Partner and Fund Manager at Invasset

We believe the markets are currently expensive, with limited pockets of growth. Investors should consider a minimum investment horizon of 3 to 4 years rather than speculating based on the election results. The anticipated volatility around the elections could negatively impact investment psychology. Therefore, it's prudent to maintain a balanced portfolio, focusing on both growth and quality.

Read here: Why is Indian stock market falling today? — explained

In conclusion, amid election-induced market fluctuations, a cautious and balanced approach is recommended. Investors are encouraged to stay informed, seek professional advice, and focus on long-term investment strategies to navigate the uncertainty and emerge stronger in the face of market volatility.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.