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Where to put my 10 Lacs? Indian Markets Ride Election Volatility

volatality in stock market

As the General Elections’ results loom on June 4, the Indian markets have turned volatile. Despite a slump last week, equity indices have shown resilience this week. This uncertainty has made Foreign Institutional Investors (FIIs) cautious, leading them to reduce their positions ahead of the remaining election phases and the vote count.

The mutual fund landscape is also reflecting this volatility. Data from the Association of Mutual Funds of India (AMFI) for April indicates a significant drop in large-cap fund inflows, contrasting sharply with the surge seen in March. Overall, equity mutual fund inflows decreased by 16% to Rs 18,917 crore in April. Interestingly, small-cap funds, which experienced net outflows in March for the first time in 30 months, saw a positive turn with net investments of Rs 2,209 crore in April.

To understand the market’s current dynamics, we take a look at what Atul Mehra, Fund Manager at Motilal Oswal Mutual Fund says. Mehra provided several insights on navigating the markets during these uncertain times and advised on how to allocate investments effectively.

Key points highlighted by Mehra include:

  • Shift to Mid and Small-Caps: Mutual fund investors are gravitating towards mid-cap and small-cap segments due to prevailing strong market sentiment.
  • Post-Election Stability: Large-cap fund inflows might increase after the election results, as FIIs seek clarity and decisiveness in the political landscape.
  • Growth Prospects: Despite the election-related uncertainty, India’s growth story remains robust, suggesting potential for continued market growth.
  • Long-Term Focus: Investors are encouraged to focus on long-term asset allocation and avoid speculative moves based on election outcomes.
  • Mixed Earnings Season: While banking sector results have been strong, the near-term demand outlook remains relatively unchanged.
  • Impact of Election Results: A win for the incumbent government with a simple majority is seen as a positive for the market, whereas an adverse outcome could negatively impact market sentiment.
  • Banking Sector Potential: The banking sector could benefit significantly from larger fund flows post-elections.

For those looking to invest Rs 10 lakh, Mehra suggests a diversified approach: allocate 50-60% to large-cap stocks and the remaining 40% to mid-cap and small-cap segments, balancing risk and potential returns amid the electoral volatility.

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