The country's ultra-high-net-worth (UHNW) and HNW individuals are not panicking, as their wealth managers advise them to steer back to large caps while the market froth cools off.

In the wake of India’s surprise election results, domestic wealth managers are telling their rich clients to move out of mid- and small-cap stocks, which had rallied sharply in the run-up to the polls, and stagger fresh equity allocations, with a focus on large caps.

The BSE Sensex had hit a record high the day before the election, expecting a strong majority for the incumbent political party, Bharatiya Janata Party (BJP), led by Narendra Modi. The market fell 5.9% on the shock outcome of a coalition government after Modi lost his parliamentary majority, and investors reassessed the outlook under the new political landscape.

The index has quickly recovered from the losses after the shock, with investors backing Modi to form a government and be able to hold the coalition together, providing a stable government for the next term.

Himadri Chatterjee, head of the advisory and key clients group at 360 ONE Wealth, said large caps are more reasonably priced and offer ‘better risk/reward’ than mid—or small-caps. He also adds that 360 ONE Wealth continues to be overweight on gold. With US interest rates near their peak, any dollar weakness may also be positive.