 "Narendra Modi, Rahul Gandhi")
As the Bharatiya Janata Party (BJP) falls short of securing a complete majority in the recent Lok Sabha elections, the National Democratic Alliance (NDA) is still poised to form a new government with its key allies. While the stock markets had anticipated a resounding victory for the BJP and a clear mandate for the NDA, the outcome has left investors grappling with uncertainty.
Exit polls had reinforced expectations of a landslide victory, leading to market optimism and rich valuations. However, the reality of a coalition government has prompted investors to engage in profit booking, resulting in a correction in the stock markets.
Analysts suggest that this profit booking phase may persist for some time as investors reevaluate their positions in light of the election outcome. However, certain sectors such as Fast Moving Consumer Goods (FMCG) and Information Technology (IT) may be relatively insulated from the correction due to their defensive nature and favorable valuations.
"The market is aware of the challenges associated with coalition government. Now with election results not being one-sided, we are witnessing profit booking. We believe this profit booking may continue for some more time. Spaces like FMCG and IT may see less damage as defensive buying along with valuation comfort may keep them immune to this correction. Though we expect some correction to continue in the market, it would not be fair to consider it as the end of the bull market. Most likely this correction may turn out to be a hiccup in the long-term bull run," said Siddarth Bhamre - Head of Research at Asit C Mehta Investment Interrmediates Ltd.
Here is how investors should invest now that the election results are out
Long-Term outlook:
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Historical data suggests that despite initial volatility, markets tend to recover and even thrive in the longer term. For instance, even after the 2014 and 2019 elections, the Indian stock market saw significant gains in the months following the election results.
This is not the time to pay big premiums on stocks, or buy only in the hope of future reform
This is not the time to pay big premiums on stocks, or buy only in the hope of future reform
"It is more important for investors to be sure about their stock selection and buy reasonably priced companies with high earnings visibility. This is not the time to pay big premiums on stocks, or buy only in the hope of future reform.
I do not see this as the end of the bull market. We see no bubbles in Indian banking, the corporate sector or the housing market. After the last few trading sessions, the market leverage also would have lightened up, which is a healthy sign. India’s growth, inflation internals, state of current account and progress on fisc are encouraging. India still has a lot of positives going for itself," said Amar Ambani, Executive Director, YES Securities.
Maintain a diversified portfolio
"Investors are advised to focus on long-term strategies, such as maintaining a diversified portfolio and avoiding panic selling. Strong fundamentals and resilience against political changes are crucial for navigating market volatility.Sectors like infrastructure, defence, and capital goods are expected to benefit from policy continuity and government focus on development projects. Large-cap stocks are preferred for their stability and resilience against economic fluctuations," said Pradeep Gupta, Co-founder & Vice-chairman, Anand Rathi Group.
Stick to large and quality mid-caps
Stick to large and quality mid-caps
" Avoid buying a stock just because it has fallen in a big way, say 15-20%. Stick with a large and quality mid cap. If you are not sure about the direction of the price of the security you are trading, then it is better to wait for the trend to emerge.For investors, interim volatility can be capitalized buy accumulating units of exchange traded funds tracking Nifty 50 index or Nifty50 Value 20 (NV20) index," said Shrey Jain Founder and CEO SAS Online. a deep discount broker.
Some experts believe the election results are expected to usher in a more balanced market environment, with a shift in risk-reward dynamics favoring large-cap stocks and sectors that have previously underperformed, such as banking and consumer goods. Conversely, there may be greater scrutiny and valuation discipline in sectors that have been performing well, including capital goods, power, defense, and manufacturing.
Despite the market correction following the election outcome, macroeconomic parameters are anticipated to remain relatively stable, providing downside support to valuations. However, investors will closely monitor government policies and the upcoming Union Budget for potential implications on sectoral preferences.
"The key data points to watch going forward would be the tilt of government policy and the Union Budget. More specifically any moderation in the capital spending outlook in favour of consumption support can further drive sectoral preferences going toward," said Rahul Singh, CIO-Equities, Tata Asset Management.
While volatility is expected to persist until there is clarity on the composition of the cabinet and key portfolios, the market is unlikely to witness a sharp rebound in the near term. However, this period of uncertainty has led to a moderation in excessive valuations, presenting opportunities for institutional buying once clarity emerges on the formation of the new government and its composition.In the interim, sectoral preferences are anticipated to undergo changes, with sectors like FMCG, healthcare, and IT likely to witness increasing investor interest, while momentum plays may slow down.
"Investors can start nibbling at high quality largecaps in IT, financials, autos and capital goods," said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
The election results have also prompted a reset in the market's investment stance towards "narrative" stocks, which had seen significant price appreciation despite questionable growth and profitability assumptions. While these stocks experienced a sharp decline in prices following the election outcome, their risk-reward profile remains unfavorable, given their rich valuations and large downside potential compared to fundamental fair values, noted Kotak Institutional Equities.
In light of the election results, investors—both institutional and non-institutional—are expected to shift their focus from narratives to numbers. Retail investors, who have been a major force behind market flows, will be closely watched for any change in their investment approach.
Kotak recommends a large-cap portfolio. It continues to emphasize high-quality stocks in banks, diversified financials, insurance, consumer staples, discretionary, pharmaceuticals, and healthcare services.
