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BJP or a weak coalition? How you should take position for different poll outcomes

NEW DELHI: With just two rounds of voting left before India gets to know which party it has voted to power in this general election, brokerages are asking investors to keep their shopping carts ready.

Brokerages recommend buying into interest rate-sensitive sectors should the BJP secure a second term as is being predicted widely. If there is a surprise outcome, investors may have to find comfort in IT and staples, they say.

Thus far, the market is factoring in an NDA-led government with a reduced majority. Eyes are fixed on how many seats the BJP managed to grab on its own.

“Pro-BJP people expects the party to get 300-plus seats. The naysayers are expecting it to get less than 200. What is coming out of the so-called non-poll polls is that the NDA is not going to win a majority. That is why the market seems to have turned quieter in the past couple of days,” said Pashupati Advani of pashupatiadvani@globalforay.

BJP does not have too many major policy proposals for its next five years in power, unlike in 2014, when it had proposed a slew of reforms such as GST, RERA, bankruptcy, said foreign brokerage Bofa-ML.

Also Raed: Kya lagta hai? Wild swings ahead as D-Street assigns probabilities to BJP seat wins

The brokerage is recommending investors to consider interest rate-sensitivities such as banks and discretionary plays such as auto in the base case scenario of an NDA win. In the auto space, the brokerage prefers four-wheelers to two-wheelers.

Should a weaker coalition come to power, staples and the rural theme can do better than the broader market. In such a case, the market might see a selloff initially, affecting the rupee and bonds, BofA-ML said, which should also lead to outperformance of the IT pack, it said.

Foreign portfolio investors (FPI) and mutual funds (MF) have already taken positions for the post-election market, with their participation in total April turnover rising to 17.5 per cent and 7.8 per cent, respectively, from the long-term averages of 15.5 per cent and 7.7 per cent.

In their election manifestos, the BJP and the Congress promised to stick to fiscal discipline. But both parties advocated a mix of populist and development-oriented measures.

Elara Capital said it is likely to stretch the fiscal situation and could only boost the economy through public spending.

“The challenge we are facing in sluggish private investments needs to be addressed with special attention, irrespective of which dispensation comes to power. To this end, crowding out of financial markets at the cost of hampering private capital raising could be a key risk that would have to be managed through fiscal discipline,” Elara said in a note.


This is how various sectors performed in the past three election phases.

Others: ICICI Direct Research

Domestic equity indices have just moved out of a consolidation phase and are showing action on the downside. At the time of writing of this report, the BSE Sensex was trading below the 38,000 level.

Also Read: As India votes, D-Street weighs impact in 3 different scenarios

Kotak Institutional Equities prefers select banks as it thinks credit growth is likely to accelerate in the economy.

"Large banks with deposit franchises are enjoying improved pricing power, and credit costs may have peaked. The balance sheets of these entities may have to shrink to accommodate more liquidity and enhance capital coverage. Also, the sweet spot of the rate cycle may be behind. We prefer ICICI bank, HDFC bank, Axis Bank and SBI," the brokerage said.

It feels signs of a nascent capex cycle should emerge after elections as capacity utilisation climbs. It prefers L&T, KEC International, Kalpaturu Power, Sadbhav Engineering and Cochin Shipyard.

Kotak likes largecap IT names and within the pharma space prefer companies with speciality filings in US and with good domestic market share.

Also Read: Will Balakot do to Modi what Falklands did to Thatcher? Smaller parties have the answer
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