The Indian equity market, which has been in the throes of volatility in the run up to the outcome of the General Elections, will likely cheer the predictions of a handsome victory for the Narendra Modi-led National Democratic Alliance. The SGX Nifty, in Monday morning, is indicating a rally in the Indian markets with the Nifty projected to reclaim 23,000.
According to exit polls released on Saturday, the NDA is seen securing 361 seats, improving on its 352-seat tally in 2019.
"A victory for the NDA would mean stability and visibility for the next five years," said Rajesh Bhatia, chief investment officer, ITI Mutual Fund. "Governments are important for capital markets. This government has done a great job on macro economic stability as well as touching the right chord as far as economic momentum is concerned. So the market will like that predictability for the next five years and that’s what we’re really looking forward to."
Maneesh Dangi, founder of Macro Mosaic Investing & Research, concurs. Foreign investors were betting aggressively on an anti-incumbency wave in India, but the exit polls suggest this has not come to pass, he said in a chat with NDTV Profit.
"For an investor it is easier. It is very likely that two-three days of knee jerk reactions pave the way for relatively lower risk premiums, because much of it would be driven by the technicalities. For the traders, if you’re short, unfortunately all sorts of stop-losses will get hit," he said.
Equity markets have behaved in a similar fashion in past elections, where there are sharp movements around the result day, but they eventually revert to the mean, according to Mayuresh Joshi, head - equity research India, William O'Neil and Co.
"Going with the presumption that the exit poll translate into reality on June 4. There are a lot of shorts that have been created by foreign investors. Therefore, short-covering and good news will push the market higher. Post numbers, as the election numbers are announced, markets start reverting back to mean, as we’ve seen in the past two elections," he said.
Which Sectors Stand To Benefit?
Market experts are in agreement that stocks that represent popular multi-year themes are currently expensive. But, there will still be tremendous opportunities in the equity markets simply on the back of the projections of economic growth going forward.
"We are at a late stage of a valuation cycle," said Rajesh Bhatia. "What is encouraging is that we’re at an early stage of an economic cycle. The translation is that the earnings per share will continue to go up even as price-to-earnings will come down."
Bhatia expects the "investment" theme to continue to be the "key portfolio overweight". The ITI Mutual Fund CIO is positive on banking, capital goods, which he defines as the investment and infrastructure theme, and telecom.
Dangi, on the other hand, is currently in favour of overseas equity, but likes Indian bonds.
Meanwhile, Joshi is positive on capital goods and infrastructure, power ancillaries, real estate ancillaries, and banking and financial services.
Proxy To India's Economy
The Adani Group of stocks could serve as a proxy to the India growth story, according to Mayuresh Joshi.
"A lot of water has gone under the bridge since the Hindenburg accusations. The balance sheet dynamics have remained stable, (and) they are showing signs of improvement. They are in the right spaces, where government capex is expected to continue and private capex is likely to come back very strongly over the next couple of years," he said in a chat with NDTV Profit.
"This means that all the triggers that you’re looking at in the spaces that Adani operates in, whether it’s ports or transmission or power, will continue growing at a good pace. And they will continue to execute at a good pace."
Another good proxy for India's growth, according to Joshi, is Larsen & Toubro.
Watch the full conversation here:
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