INSUBCONTINENT EXCLUSIVE:
It's hard to predict whether India will re-elect a majority government next year
But one fund manager has advice for investors: go against the crowd
If stocks start to rise on expectations of a stable administration, investors must book profit and re-enter should the results confirm the
outcome, said Nilesh Shah, who oversees $19 billion as chief executive officer of Kotak Asset Management Co
Conversely, declines driven by fears of a coalition government should be bought into
The reward - if the vote surprises positively - will likely outweigh the risks if results indeed signal a multi-party alliance."We ask
investors to consult their astrologer on who the next Prime Minister will be and the shape of the new government because we don't have the
ability to predict," Mr Shah said
"If you don't have an astrologer, please play contra."Prime Minister Narendra Modi's Bharatiya Janata Party will contest with the main
opposition Congress party in several polls starting May 12 in Karnataka before a national ballot in 2019
PM Modi's popularity has taken a hit among voters in some pockets and a change in political expectations may undermine a rally that's almost
doubled India's market value since he swept to power in May 2014."Twelve months may be a long period in politics but will the sentiment be
impacted by the Karnataka results The answer is likely yes because investors want to price in the May 2019 election risk," Shah said.A win
in Karnataka will help the BJP deepen its footprint in south and wrest one of the last big state from the Congress party
Even the formation of a BJP coalition government will be welcomed as it would signal that the ruling party can still lure allies that it
will need to succeed in the national poll, according to a CLSA note last month.Mr Shah shared his views in an interview in Mumbai:What is
the rationale behind the 'contra' strategy"We can't predict election outcomes
We're telling investors that if the market prices in a stable government, take some profit
If the market is right you can still re-enter at slightly higher prices
But if it is proven wrong, you will see much lower levels
On the other hand, if the odds of a coalition government rise, your existing portfolio won't be in a good shape but take risk put more money
If the market is right, you may lose 5 percent, but if results surprise positively, you will get 25 per cent."What is your assessment of the
corporate mood right now"Of the managements we've met, those who were pessimistic have become cautiously optimistic
The guys who were cautiously optimistic have become optimistic, and those that were optimistic have become super bullish
Everyone has moved up one notch
That's the summary of our last 90 days of meetings."When do you expect the private-sector capex to pick up"Capex will begin but it is going
One, if interest rates are high and the currency is overvalued, entrepreneurs have less incentive to invest
There is also the ease of doing business, which the government is trying to improve
Finally, there is a political angle - if the general elections are in 2019, it is reasonable to expect that some capex may be deferred."What
are your views on the March-quarter corporate results"We must appreciate the constraints in which the economic performance is coming
There are very few countries where nominal interest rates are as high as ours
Indian entrepreneurs are running a hurdle race while others are running a normal race
Performance is coming despite higher rates and an overvalued currency
