Prime Minister Narendra Modi with BJP National President Amit Shah during the swearing-in ceremony of the newly elected ministers in Agartala on March 9, 2018. (Source: PTI)

Should You Choose Mid Caps Or Large Caps Going Into Elections? Macquarie’s Sandeep Bhatia Answers

Investors with a strong political opinion—and who are willing to take a bet on it—can try and invest in mid-cap stocks right now.

For others, it is better to wait for the election outcome next year, according to Macquarie Capital Securities’ Managing Director Sandeep Bhatia who believes politics is the main near-term risk for Indian markets.

“If you don’t want to take the political risk then wait for some clarity to come through,” he said in an interview to BloombergQuint. Until then, he said, quality names among the large-cap stocks are the way to go. He recommended names including ICICI Bank Ltd., IndusInd Bank Ltd., Axis Bank Ltd. and Maruti Suzuki India Ltd.

Investors will be closely watching the outcome of the elections in five key states in November and December to gauge the nation's mood ahead of the general elections next year. This, in turn, will keep the markets volatile, Bhatia. "Some things are beyond analysis... politics could be one of those things.”

However, post elections, Indian equities should rise to reflect the country’s economic strength. The macro and micro fundamentals today are in much better shape than they were over the last few years, Bhatia said.

“The economy will not give you a negative surprise but politics can easily give you a negative surprise. So take your bets.”

Here are the other key highlights from the conversation:

  • U.S. Treasury yields are going to go up; will reach 4 percent in a year's time
  • Growth in China will remain under pressure
  • Oil prices seem to have moderated
  • Within India, earnings growth is coming back after a long four-year gap
  • India's bank balance sheets have taken a long time to get repaired
  • India's capex story is still a train that hasn’t arrived yet
  • Near term uncertainty would be on politics front
  • Fund flows will remain muted to negative until we know where yields are headed
  • Not a concern as it is happening across all emerging markets
  • Quality and large-cap names are where we should be going
  • Can look at mid caps and small caps after election results
  • Currency was a risk but the depreciation news is behind us

Watch the interview here