Indea Hedge Fund Plans to Buy, Not ‘Panic,’ on Election Results

May 15 (Bloomberg) -- Indea Capital Pte, an India-focused hedge fund that manages about $300 million, plans to buy shares even if India’s election results disappoint investors, said Chief Investment Officer Raj Mishra.

The ruling Congress party-led coalition and the main opposition-led group may have each failed to secure enough votes to form a government, based on exit polls after a five-week election that ended May 13.

“The bias is to buy when there’s a post-election decline rather than to panic,” Mishra, who is based in Singapore, said in an interview today. “Once the election is complete and we have better clarity about the strength of the government, then probably potential long-term investors will feel more comfortable.”

The Bombay Stock Exchange’s Sensitive Index, which has gained 23 percent this year, may rise another 25 percent “in the medium term,” he said. Indian stocks fell yesterday after exit polls indicated no single party will win enough votes to form the next government ahead of counting tomorrow.

After the last elections, the Sensex plunged 11 percent on May 17, 2004, as investors feared that Communist allies in the new government would slow the pace of reforms.

The reaction to the election results will be “less severe” this time as “no one expects anyone to get an overwhelming majority,” Mishra said.

Poll Outcome

“Market participants are less homogenous these days,” Mishra said. “It doesn’t appear to me that everybody’s expecting a favorable outcome.”

Indian Prime Minister Manmohan Singh may need support from regional parties to continue ruling the world’s largest democracy.

Six television networks forecast the ruling alliance led by Singh’s Congress party may emerge just ahead of its chief rival. CNN-IBN predicted Congress and its allies will get as many as 205 seats compared with a maximum 185 for the opposing coalition. Star News-Nielsen and News X gave the Congress-led bloc 199 seats to 191 for the BJP-led group.

The outcome of India’s election is likely to affect the market for as long as two weeks, “not longer term,” Mishra said.

The International Monetary Fund expects India’s economy to grow 4.5 percent in 2009, while Reserve Bank of India Governor Duvvuri Subbarao said April 21 that government stimulus and monetary easing could help the economy grow 6 percent in the year that started April 1.

Growth Prospects

Such growth “is still very good by global standards and there are companies that will benefit from it,” Mishra said.

A third of Indea’s Long Term Opportunities Fund, which bets on rising stocks, is in cash and the manager is preparing to invest should stocks decline, Mishra said. The fund gained 11.5 percent in April.

The Indea Absolute Return Fund, which bets on rising as well as falling stocks, reported an average annual return of 14.75 percent since it was set up in July 2003.

The firm also started a quantitative fund, Indea Ankam Fund, in March. The fund is run by Saurabh Singal, who joined Indea from Deutsche Bank AG last year. While the fund uses computer models to pick trades, it also relies on the “subjective judgement” of the manager, Mishra said.

Some clients that withdrew from Indea’s funds last year are “looking to return as conditions stabilize,” Mishra said. “We’re seeing increasing interest from old investors,” he said.

The firm managed about $1 billion at the peak in early 2008, he said.

Mishra was the head of equities at Dresdner Kleinwort Wasserstein before “very cheap valuations” in the stock market and India’s accelerating economic growth prompted him to start his own hedge fund business in 2003.