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The country’s private wealth managers seem to be facing a dichotomy: Should they, or should they not, take the plunge into equities before the Lok Sabha election results on May 16.
The equity markets have remained buoyant for some time, hoping the final result won’t spring a negative surprise and the economy will take a recovery path under the next government. However, this has only added to doubts in the minds of wealth managers. They are divided on whether they should invest incremental flows into stocks or stick to cash till the day of the announcement of results.
“There seem to be two camps right now. There are those investors who don’t want to make incremental investments till the results are out, while there are others who continue to invest on the assumption that one of the major political parties will come to power,” says Swapnil Pawar, chief investment officer, Karvy Capital.
Besides, as the election result day approaches, an increase in market volatility is only making things more difficult for wealth managers.
“Given the volatility, our advice to investors at this point is to stay away from equities. Any new equity strategy for our clients will be considered only after May 12 when the various opinion polls start trickling in,” says Ankit Swaika, head (investment advisory & research), Religare Macquarie Wealth Management.
Some, however, remain optimistic and are asking investors not to take their feet off the pedal, as that will mean missing out on the spurt the market could see if the election outcome is positive.
“Elections will bring their fair share of volatility. But we are telling people to come into equities in a staggered manner by investing in diversified equity funds,” says Ashish Shanker, head (investment), Motilal Oswal Private Wealth Management.
Given the sharp run-up in the markets in recent months, investment experts say the risk-reward ratio has turned unfavourable.
“We don’t want to speculate before the results are out, as we believe the risk-reward ratio is not in favour of investing right now. It is an event that can go either way... a lot of upsides have already been built into the market,” says Raghavendra Nath, managing director, Ladderup Corporate Advisory.
To stay nimbler ahead of the results, some wealth managers are giving investing in equity mutual funds a pause.
“If we invest through mutual funds, any change in strategies will result in exit loads. So, we are implementing our strategy by investing into equities directly,” says Prateek Pant, executive director (products & services), RBS Private Banking, India.
Some wealth managers say they are adopting a more defensive stance ahead of the elections. They are recommending clients to cash out in sectors like infrastructure and finance and move back to defensive bets like information technology and health care, where the downsides are limited.
TO BET OR NOT TO BET?
Possible scenarios and likely stock market reactions
The Narendra Modi-led NDA forms govt with 2-3 allies
* Beta rally will continue for two-three months, assuming it is supported by positive global cues
* But the rally could be cut short if the govt proves ineffective in driving reforms, and if the April-June quarter of 2014-15 disappoints
The Narendra Modi-led NDA forms govt with 5-6 allies
* Markets will remain dull till there is a consensus on post-poll alliance
* If Modi leads the coalition, sentiment might remain positive
* Quality cyclical stocks could see good demand
Any other NDA leader becomes PM with support from 8-10 allies
* No Modi at the Centre might hurt market sentiment
* With fears of an unstable govt, there could be some sector rotation, with defensives likely coming back into favour
* Investors could look at exiting cyclicals
Third Front forms the next govt with the Congress party’s support
* Beta rally could reverse on fears of a rating downgrade
* Historically, poll results have not led to changes in market trends, so broader markets could stay resilient
* Defensives and exporters could again become market favourites
