How to Play Likely Modi Victory? Analysts Bet on Mid-Caps
A battered corner of India’s $2.1 trillion stock market may be ready to shine after the exit polls.
(Bloomberg) --
A battered corner of India’s $2.1 trillion stock market -- mid-cap shares -- may be ready to shine after exit polls in India signaled a second term for Prime Minister Narendra Modi
While the benchmark Nifty 50 Index rallied 3.7% to a fresh peak, the Nifty MidCap 100 Index advanced 4.1% as the strength of the projected victory boosted the broader market. The outperformance may continue if Modi does indeed emerge victorious, analysts say.
“If actual results are close to what exit polls indicate, we expect beaten down mid- and small-cap stocks to take center stage,” said Dharmesh Kant, head of retail research at Indianivesh Securities Ltd. in Mumbai. “The rally has the potential to throw up multi-baggers from the mid-cap segment.”
The Nifty MidCap gauge’s valuation is near the cheapest since 2012 relative to the main NSE Nifty 50 Index despite Monday’s surge. That signals potential for further gains in case of a favorable electoral verdict, according to brokerages including Angel Broking Ltd. and Kotak Securities Ltd.
“We saw stellar moves in many pockets, especially the midcap index, which had given early signs of completing its time-wise as well as price-wise correction phase,” Sameet Chavan of Mumbai-based Angel, said by email. “The party seems to have begun for mid-caps.”
Smaller companies, stars of India’s market in 2017, bore the brunt of the sell-off that roiled India and other emerging nations last year. The Nifty midcap gauge closed 2018 with a loss of 15%, versus a 3.2% gain for the Nifty Index, as investors sought the safety of the biggest stocks amid headwinds from the trade conflict and rising oil prices. The mid-cap gauge remains modestly down for 2019, while the benchmark is at a new high.
“If we have the BJP-led coalition coming back to power then expect broader participation in the mid- and small-cap space as they are the most beaten down in the last 18 months,” Rusmik Oza, head of fundamental research at Kotak, said by email.
A potential victory for Modi’s Bharatiya Janata Party-led alliance will also help bring back domestic fund flows, and that’s good news for mid-cap stocks, said Mahesh Nandurkar and Abhinav Sinha, analysts at CLSA India Pvt.
Flows into local equity mutual funds in April were the smallest in 31 months as the anxiety about the outcome of the marathon election prompted investors to hold off on fresh purchases. Still, funds that invest in mid- and small-caps contributed to a bulk of the month’s inflow, the Association of Mutual Funds in India said earlier this month.
CLSA’s mid-cap picks include developers Godrej Properties Ltd. and Sobha Ltd., Lemon Tree Hotels Ltd., Aditya Birla Fashions Ltd. and Dr. Lal PathLabs, a diagnostic company.
--With assistance from Ameya Karve.
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To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, ;Divya Balji at dbalji1@bloomberg.net, Joanna Ossinger
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