The market had priced in an overwhelming majority for the BJP and the ruling National Democratic Alliance (NDA) alliance. The surprise poll verdict revealed that the BJP fell well short of the majority of 272+ mark and won 241 seats. The opposition Congress-led INDIA Alliance notably improved its tally and won 232 seats, with the Congress almost doubling its tally to 99 seats from 52 in 2019.
However, leading domestic brokerages say that election results are unlikely to impact markets much, barring big surprises. Analysts said there was a huge difference between the exit polls and the actual results tally, so the markets witnessed deep cuts from the record-high gains notched on June 3, 2024.
‘’Beyond the short-term market movement due to news flow, events and sentiments, we expect in the medium to longer term, corporate earnings, equity valuation and the macroeconomic performance to continue to be the main drivers of the Indian equity market,” said Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers.
Despite the reduced majority, analysts of top brokerages expect the policy agenda of Modi 2.0, which involved investment-led growth, capex, infrastructure creation, manufacturing- to continue, although with some tweaks.
Motilal Oswal Financial Services expects some populist measures to address rural stress and lift sentiments at the margin, given the nature of the verdict. After the initial disappointment and anxiety around government formation, analysts expect the focus to revert to fundamental bottom-up stock picking.
According to the brokerage, with elections now behind, fundamentally, India remains in a very good shape with almost a ‘mini-Goldilocks moment’ with excellent macroeconomic fundamentals, which are as follows:
-Gross domestic product (GDP) growth at 8.2 per cent in FY24
-Inflation at nearly five per cent, one point above four per cent
-Current account and fiscal deficits within the tolerance band
-Solid corporate earnings. Nifty 50 ended FY24 with 25 per cent growth, and FY25/26 earnings are likely to post 14-15 per cent CAGR
-Valuations at ~20x one-year forward earnings
Sectors with overheated valuations and recent sharp outperformance, namely industrials, railways, defense, and PSUs, may see more moderation in valuations before they become attractive again from the risk-reward perspective.
‘’We will continue to prefer large caps over small and midcaps as we seek valuation comfort. On a sectoral level, we prefer the consumer space as it will benefit from improving consumption demand due to the normal monsoon; moreover, any populist measures tend to benefit the consumer space the most,” said domestic brokerage JM Financials in its research report.
This election marks the end of a decade of single-party majority, ushering in an era of coalition politics at the Centre. The BJP not getting a simple majority on its own means that the alliance partners will have higher negotiating power. The opposition’s unexpectedly strong showing was due to their focus on local issues and welfare schemes compared to the BJP’s macro narrative.
‘We believe that with the upcoming state elections in 2024-25, welfare measures and the incremental focus on boosting consumption would gain prominence. Continued policy reforms are anticipated to sustain India’s status as the world’s fastest growing major economy over the next five years,” said Sujan Hajra of Anand Rathi.
‘’Strong macroeconomic performance will continue to support the Indian equity market, ensuring it remains one of the best performing among major markets. We reiterate our positive stance on discretionary consumption, two-wheelers, passenger cars, FMCG, financials, cement, hospitality and IT. We believe Nifty 50 would likely yield 10-12 per cent over the next 12 months,” added Hajra.
On bond markets, Jitendra Gohil, Chief Investment Strategist, Kotak Alternate Asset Managers expects yields to head lower, slower than earlier anticipated.
‘’The INR could experience near-term volatility, but we believe it may depreciate at a slower rate than the historical average of around four per cent. Weaker dollar fundamentals against India’s improved fundamentals may lead to a depreciation of around two per cent per year in medium term, in our view,” said Gohil.
According to Motilal Oswal, the top 18 stock picks for investors post-election results are as follows:
TOP IDEAS | Large caps – ICICI Bank, ITC, HCL Tech, Coal India, State Bank of India (SBI), L&T, M&M, Ultratech Cement, CIFC and Hindalco
Midcaps: Indian Hotels, Ashok Leyland, Godrej Properties, Global Health, KEI Industries, PNB Housing, Cello World, and Kirloskar Oil.
According to Elara Securities, metals and pharmaceuticals are among the external-facing sectors that are largely immune to the domestic political scenario. Hindalco and Zydus Lifesciences are its top stock picks respectively from the two sectors.
Large private banks are structurally better placed than PSUs are as the former are set to deliver steady earnings growth, within which the brokerage prefers ICICI Bank and Axis Bank.
The election outcome has no bearing on the real estate sector, according to Elara. The brokerage expects the sector to continue doing well on the back of continued robust demand. Prestige Estate Projects and Godrej Properties are its top picks in this space
In the FMCG space, the brokerage prefers HUL, GCPL and Marico and Bayer Crop and Coromandel in Agrochemicals. On the other hand, Elara expects the PSU space to derate further until the spending priorities of the coalition become clear. ‘’We are ‘Sell’ on Bharat Dynamics and BEML, while we suggest to ‘Buy’ RITES on dips,” said Elara Securities.
With the major event now behind us, Ajit Mishra – SVP, Research, Religare Broking Ltd. anticipates a gradual reduction in volatility. The Nifty 50 index rebound is encouraging, but sustaining above the 22,600 level is crucial for a move towards 23,000.
Conversely, the 21,800-22,000 range should provide support in case of profit-taking, added Mishra. Prashanth Tapse, Senior VP (Research), Mehta Equities agreed, ‘’Technically, the upside appears limited in the short term, while the downside may develop in phases.”
The key level to watch is the psychological 21,000 mark; if the market closes below this level, further selling could drive it down to test 20,200, added Tapse.
Shrikant Chouhan, Head Equity Research, Kotak Securities said, ‘’We are of the view that, the current market texture is extremely volatile hence, level based trading would be the ideal strategy for the day traders.
‘’ For the traders now, 22,500-22,400/74,000-73,700 would be the key supports zones while 22,800-22,950/75,000-75,500 would act as a crucial resistance area for the bulls. However, below 22,400/73,700 uptrend would be vulnerable,” added Chouhan.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
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Published: 05 Jun 2024, 09:45 PM IST
