Pre-election rally: Nifty could rise to 23400 by June, buy on dips, says ICICI Securities

Empirically, in General election year, Nifty tends to bottom out in Feb- March, followed by minimum 14% rally towards General election outcome in each of 7 instances over last 3 decades

A pre-election rally in the stock market is on the cards with the Nifty expected to advance to 23,400 by June, and investors should use the current volatility as an opportunity to buy on dips, said brokerage ICICI Securities in a note.

"Empirically, in an election year Feb-Mar bottom offers fresh entry opportunity to ride next leg of up move in the run up to General Election garnering minimum returns of 14 per cent, " said Dharmesh Shah of ICICI Securities.

ICICI Sec expects Nifty to form a 'durable bottom' in the February-March period wherein 20,500-20,800 levels could be a strong support. "Usual bull market corrections in Nifty are around 8% (multiple cycle average) followed by new highs," the report said. "Volatility from hereon should be embraced as a buying opportunity."

The brokerage expects, PSU stocks, IT, Power, capital goods, metals and BSE PSU stocks to outperform in the run up to elections. 

Here are its top picks: 

"Usual bull market corrections in Nifty are around 8% (multiple cycle average) followed by new highs. As 4.5% correction (from life high of 22124) is behind us, model indicate strong support in 20500-20800 which we expect to hold..Going by four decade history, median returns in election year has been 17%. Therefore, one should use volatility during an election year as a buying opportunity," said Nitin Kunte of ICICI Securities.

ICICI Securities also said that the ratio of Nifty to Nifty500 is at the bottom of the cycle. "Over two decades, this ratio bottomed out at 1 on two occasions, followed by large-caps performing in subsequent quarters."