Small-Cap ETFs to Play India's Post-Election Growth Opportunity | ETF Trends

With India’s new Prime Minister-elect Narendra Modi moving into office, Indian stocks are surging. Investors can best capture the growth opportunities the new administration is promising through small-cap exchange traded funds.

“There is a huge scope for the economy to improve,” S Naren, CIO, ICICI Prudential AMC, said in an Economic Times article. “So, all the economy-sensitive equity markets — whether it is small cap, midcap, infrastructure or banking — will see huge upsides as the economy picks up over the next three years.”

Naren argued that the current situation in India could mirror the 2004 environment where small-caps and mid-caps could outperform the large-cap markets.

In a recent study, Ambit Capital has also found that the best stock returns come in the first two years following a new regime in India.

“After any election, if the sentiment turns out to be good, the small-and mid-caps tend to outperform large-caps in the near-to-medium term,” R Sreesankar, head (institutional equities), Prabhudas Lilladher, said in a Business Standard article. “We believe that the same pattern will be followed this time, too.”

Modi’s new government is seen as very business friendly. The government could implement important reforms in areas like agriculture, banking and industrials. [May Elections Could Be a Good Turn for India ETFs]