Recently, the Congress introduced a no-confidence motion against the government, prompted by the opposition's insistence that Modi addresses Parliament about the Manipur conflicts, which erupted between the dominant Meitei group and the tribal Kuki minority in May.
While the discussion on the no-confidence motion starts today in the Lok Sabha, and we are glued to news channels to follow the proceedings, let us understand briefly what a no-confidence motion is.
A no-confidence motion is a political move to challenge a ruling government's majority, seeking its removal, and it can lead to a new government formation if the majority votes against the government. With BJP having a strong majority, the removal of the government is not likely, but let us give this news a personal finance twist. Can there be a situation where you get your portfolio reviewed by a financial planner, and he or she gives it a no-confidence motion? What are some of the red flags that will point to this? We take a look.
Lack Of Diversification: Lack of diversification in a portfolio across asset classes, sectors, or industries can expose your portfolio to excessive risk. Over-reliance on a single stock or asset class like equities or debt amplifies potential losses.
High-Risk Assets: Consistent and extreme price fluctuations indicate high risks, which could stem from market instability or poor investment choices. It's crucial to assess whether such fluctuations align with your risk tolerance. For example, if you are a conservative investor and invested in small-cap stocks, it can be a problem.
Long-Term Underperformance: If your portfolio consistently underperforms its benchmark over an extended period, it suggests poor investment choices or strategy. Regularly compare your returns against appropriate benchmarks. Otherwise, your portfolio is not optimised.
Lack Of Rebalancing: Over time, the proportion of your assets allocated to different investments may shift due to market movements. Failing to rebalance can lead to unintended risk exposure, as your portfolio may become skewed towards certain assets.
What You Should Do
Consistently review your portfolio to detect trends and anomalies. Ensure diverse investments across assets, industries, and regions to mitigate risks. Regularly assess your risk tolerance and adjust your investments accordingly.
Stay informed through diligent research about your holdings to make informed decisions and identify potential problems early. Maintain your desired asset allocation and manage risk exposure by regularly rebalancing your portfolio. If unsure, seek professional advice for effective portfolio management.
Remember that if your portfolio fundamentals are strong, just like the numbers of the current government, a no-confidence motion cannot vote it out of power!