Mid-Cap Investors Worried About Elections Can Take Heart From History

The benchmark index has returned gains in each of last four election years. Mid caps, too, rallied in those years, particularly after the results are announced.

The Nifty 50 Index, for instance, rose between 32 percent and 67 percent during the election years. The index also returned gains a month before elections and on result day in each instance.

The NSE Midcap 100 Index has gained after the election verdict in the last three election years. Data for 1999 wasn’t available.

Nearly half of the mid-cap companies listed on the National Stock Exchange are trading below their five-year average price-to-earnings multiples and 41 percent are trading below their five-year average price-to-book multiples, according to CLSA.

Vikas Khemani, founder of Carnelian Capital Advisors, said 2019 won’t be different from other election years. Large caps generally rally in the run-up to elections and once the uncertainty subsides, it’s likely that mid caps will surge, he said.

Jinesh Gopani, assistant fund manager of equity at Axis Mutual Fund and Taher Badshah, chief investment officer of equities at Invesco Asset Management (India) Private Ltd., share the view. Nilesh Shah, managing director and chief executive officer of Envision Capital, concurs. “The trend witnessed in the prior election years could repeat this year,” he said.

Inflows from foreign investors has supported the market rally so far this year. Foreign investors were net buyers of Indian equities in all the four previous general election years.

The inflows of Rs 39,000 crore so far this year is the highest in a three-month period ahead of elections since 1999. That’s also greater than the total of inflows during the last four elections.

Foreign institutional investors typically increase investments in emerging markets during election years, said Ken Wong, Asian equity portfolio specialist, Eastsprings Investments. Such investors, he said, are looking at underd pockets in India that promise good growth in the next few quarters.