How to Invest in NIFTY 50 after General Election Results?
Polling for 2024 General Elections are now over and markets are expecting the ruling dispensation under Prime Minister Modi to be voted back to power for the third time! If indeed official results eventually confirm what the markets are pricing in, we could well see an euphoric rally in NIFTY from here. However it’s instructive to also note that such wild swings in the NIFTY in the immediate aftermath of election results hardy last beyond a few weeks and that the NIFTY, more often than not, reverts back very soon to trending in line what the prevailing global macro-economic context dictates. And that is why it is important to go beyond an narrow election-centric view of the NIFTY, and to never lose sight of the larger global macro-economic context at this time, because that is what will determine the real direction of the NIFTY once the initial euphoria related to the elections results wanes in a few weeks!
And the most important part of the larger macro-economic context prevailing at this point is the unmistakable slowdown being witnessed in the US economy, which will ultimately force the Federal Reserve to react sooner rather than later by way of initiating rate cuts in the US. And history shows that rate cuts, as and when they start, are at least initially, interpreted by equity markets as a bullish signal and are usually cheered by way of strong rallies in equity markets. However that’s usually a completely wrong interpretation! And the real reason the Fed has to start cutting rates towards the end of every business cycle is NOT because it really intends to pander to equity markets, but because the economy is in such a bad state by then that the Fed simply has no option left but to cut rates, in the hope that rate cuts would be able to salvage the economy and prevent it from slipping into a recession. And yet history shows that Fed has hardly ever been successful in this, and that the US economy has invariably slipped into the next recession anyways, despite the Fed starting to cut rates! Furthermore, recessions in the US have invariably been marked by steep stock market corrections, NOT just in the US, but pretty much around the world including here in India.
In this backdrop, the combined impact of the Indian general election results and a slowing US economy could well mean that we could get an euphoric rally in the NIFTY if and when Mr. Modi’s re-election is confirmed. But any such rally could ultimately fizzle out within a few weeks and the NIFTY would very likely be guided thereafter by the dynamics governing equity markets in the run up to the start of rate cuts by the Fed and eventual onset of a recession in the US (that has been described above)
Do watch the below YouTube video on How to Invest in NIFTY 50 after the announcement of General Election Results?
Do watch my last video on FED Funds Rate and how equity markets typically react in response to rate cuts
Also, do watch my earlier video titled “How to Navigate the Coming Liquidity Crisis in Equity Markets?” that I have referred to multiple times in this video.
