Political uncertainty is emerging as a key risk for investors as Prime Minister Narendra Modi’s Bharatiya Janata Party faces elections in five states before a national vote to be held by May.
Now is the time for equity investors to bet on India’s election results, even though the polls aren’t likely till May, according to FundsIndia.
Investing five to six months before the elections in 2009 and 2014 earned an average three to six percent more than the Indian benchmark return in the five-year period to the next vote, said Vidya Bala, head of mutual fund research at the online retail investment platform with assets equivalent to $775 million under management.
“Elections are a season of volatility and it is good to capture this period,” she said, adding that by the time the results are out, most of the uncertainty is priced in and the equity market moves on from the verdict.
Political uncertainty is emerging as a key risk for investors as Prime Minister Narendra Modi’s Bharatiya Janata Party faces elections in five states before a national vote to be held by May. Some opinion polls are predicting a win for the main opposition Congress in Rajasthan, and a close contest in Madhya Pradesh and Chhattisgarh — both of which are currently ruled by the BJP.
A verdict in favor of continuity would be beneficial for companies that are direct beneficiaries of an improving economic outlook, such as financial services, manufacturing, transportation and logistics firms, according to Funds India. Defensive stocks such as those in the consumer sector and multinational firms would likely fare better on opposition gains, it said.
Still, while FundsIndia has launched two portfolios of mutual funds geared toward both possible outcomes from next year’s general election — the current government retaining power or a change at the centre — Bala doesn’t see a huge deviation ahead for longer-term investors.
“Investors have a strong view on elections and the portfolios address both the aggressive and defensive investor,” she said. “However, over a five-year period, we don’t expect a wide difference between the returns they will offer.”