On Monday, the Indian stock market benchmark indices, Sensex and Nifty 50, surged to record high levels buoyed by optimism that Prime Minister Narendra Modi will secure a third term in office. Several exit polls have indicated that the BJP-led alliance is likely to win the 2024 Lok Sabha elections with a commanding majority. Analysts believe that a consecutive third term for Modi with an absolute majority in the lower house of Parliament will be beneficial for the Indian economy and stock markets.
Seshadri Sen, Head Of Research and Strategist at Emkay Global Financial Services, highlighted the macroeconomic stability achieved by the NDA government, which he expects to continue if the current administration retains power. Sen believes that maintaining macroeconomic and financial stability is crucial for sustained economic growth and corporate earnings.
Additionally, Sen anticipates continued capital expenditure with a focus on infrastructure projects such as roads, railways, affordable housing, and green energy. The government is also expected to push for increased domestic manufacturing, particularly in the pharma API, textiles, autos/EVs, and electronics sectors.
Sen predicts that macro-financial stability, along with investments in capex and manufacturing, will sustain the multi-year bull run in Indian equities. He emphasized sectors like Industrials, Materials, and Discretionary over Financials and IT as key areas to watch if the NDA retains power. Immediate beneficiaries of a third NDA government include Capital Goods (railways and defense), Housing, Tourism, and Aviation, with Textiles and Pharma API also likely to gain. Despite the favorable outlook, Sen noted valuation challenges for some sectors and maintained an overweight stance on Industrials, Discretionary, and Materials, while underweighting Financials and IT. He also favors Smallcaps and Midcaps (SMIDs) over large caps, setting a target of 24,000 for the Nifty 50 by December 2024.
Kotak Institutional Equities also expects the ‘new’ government to maintain its focus on development, growth, and liberalization. They anticipate increased capital expenditure, supported by the recent large transfer of the RBI surplus. Key areas of focus will likely include affordable healthcare and housing, energy transition, infrastructure development (defense, railways, and roads), and manufacturing. However, Kotak Equities noted the challenge of overvaluation in the market, with most sectors and stocks appearing overvalued relative to their fair value.
Motilal Oswal’s model portfolio aligns with domestic cyclical themes, remaining overweight on Financials, Consumption, Industrials, and Real Estate. Their preferred investment themes include Industrials, Consumer Discretionary, Real Estate, and PSU Banks, reflecting confidence in continued earnings growth.
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