Indian Stock Surge on Hopes of Modi’s Third Term Victory
On Monday, the Sensex and Nifty 50, India’s stock market benchmark indices, opened at record high levels driven by optimism surrounding Prime Minister Narendra Modi’s potential third term. Exit polls suggest that the BJP-led alliance is poised to secure a substantial majority in the 2024 Lok Sabha elections. Analysts anticipate that another term for Modi, with a decisive majority in Parliament, will positively impact the Indian economy and stock markets.
Seshadri Sen, Head Of Research and Strategist at Emkay Global Financial Services, pointed out that macroeconomic stability has been a hallmark of the NDA administration and expects this to continue if they retain power. He believes that prioritizing macroeconomic and financial stability is vital for sustained growth and corporate earnings.
Sen also foresees continued capital expenditure with a focus on infrastructure, including roads, railways, affordable housing, and green energy. The government is likely to boost domestic manufacturing, with particular emphasis on the pharma API, textiles, autos/EVs, and electronics sectors.
According to Sen, the continuation of macro-financial stability and investment in capex and manufacturing will help sustain the ongoing bull run in Indian equities. He favors sectors such as Industrials, Materials, and Discretionary over Financials and IT. Immediate beneficiaries of a third NDA government include Capital Goods (railways and defense), Housing, Tourism, and Aviation, with potential gains for Textiles and Pharma API. Sen also acknowledged valuation challenges for some sectors and maintained an overweight position on Industrials, Discretionary, and Materials, while underweighting Financials and IT. He prefers Smallcaps and Midcaps (SMIDs) over large caps, targeting 24,000 for the Nifty 50 by December 2024.
Kotak Institutional Equities expects the ‘new’ government to continue its focus on economic development, growth, and liberalization. They anticipate increased capital expenditure, aided by the recent large transfer of the RBI surplus. Key areas of focus are likely to include affordable healthcare and housing, energy transition, infrastructure development (defense, railways, and roads), and manufacturing. Despite this, Kotak Equities noted that many sectors and stocks are currently overvalued relative to their fair value.
Motilal Oswal’s model portfolio continues to align with domestic cyclical themes, remaining overweight on Financials, Consumption, Industrials, and Real Estate. Their key investment themes include Industrials, Consumer Discretionary, Real Estate, and PSU Banks, reflecting a consistent backdrop of earnings growth.
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