$19bn fund favours contrarian bet in India poll season

Bloomberg

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,” 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 the southern state of Karnataka before a national ballot in 2019.
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, 49, said.
The India VIX index, a measure of volatility expectations, halted a eight-day streak of gains, which was the longest in three years.
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, CLSA said in a note last month. Results are due on May 15.