As the 2024 Lok Sabha Election is underway and Prime Minister Narendra Modi seeks a third term, investors are preparing for more market ups and downs. Will India’s election impact future interest rates and the fixed-income market? In an episode of Market Talks focusing on Secrets of Fixed Income Investing, Dhawal Dalal, Chief Investment Officer of Fixed Income at Edelweiss MF, sheds light on the fixed income market, also called the bond market.
What is a fixed-income market?
Dhawal Dalal stated, “The fixed income market, often termed the bond market, surpasses the equity market in size threefold. It comprises diverse sectors such as post office investments, insurance products, and fixed deposits, all categorised as fixed income instruments.”
Key Characteristics:
24/7 Operation: Unlike equity markets, which operate Monday to Friday, the bond market functions around the clock, facilitating continuous trading.
Reduced Volatility: In comparison to equity markets, the bond market tends to exhibit lower levels of volatility, offering investors a more stable investment environment
Bond Market and General Election 2024
Regarding the impact of general elections on the bond market, he emphasized that it is more influenced by the government’s fiscal policy than by polls themselves. Before the election, there was anticipation that the government would announce populist measures. However, the government exhibited resilience by avoiding such actions to gain electoral favour.
He further noted the current government’s dedication to fiscal responsibility. “This commitment to prudent fiscal policies will likely continue if the current government wins the election. However, a new government taking office could introduce some volatility as new policies are devised and implemented,” stated Dalal.
Wealth advisors recommend investing in fixed-income instruments, as they offer stability to portfolios and enable investors to navigate periods of volatility easily. Understanding the dynamics of equity and fixed-income markets is crucial for investors seeking to construct a well-balanced and diversified portfolio.
Key takeaways
Interest rates are expected to decrease, yet fixed-income investments remain attractive to investors due to their lower volatility. Consequently, investors should allocate more of their portfolio to fixed-income assets.
Watch Video here
Lok Sabha Election 2024
The initial five phases of polling occurred on April 19, April 26, May 7, May 13, and May 20. The subsequent two rounds of voting are scheduled for May 25 and June 1. The 2024 Lok Sabha elections are being conducted in seven phases, spanning six weeks from April 19 to June 1. Results are slated for announcement on June 4.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 22 May 2024, 02:59 PM IST