The Indian stock market benchmarks, Sensex and Nifty 50, reached record high levels on Monday, fueled by optimism that Prime Minister Narendra Modi will secure a third term. Exit polls suggest the BJP-led alliance is on course to win the 2024 Lok Sabha elections with a significant majority. Analysts believe a third term for Modi with a strong mandate will benefit the Indian economy and stock markets.
Seshadri Sen, Head Of Research and Strategist at Emkay Global Financial Services, emphasized that macroeconomic stability has been a key achievement of the NDA government. He expects this stability to continue if the current government retains power, which he believes is essential for sustained economic growth and corporate earnings.
Sen also predicts continued capital expenditure with a focus on infrastructure projects like roads, railways, affordable housing, and green energy. The government is likely to push for increased domestic manufacturing, particularly in the pharma API, textiles, autos/EVs, and electronics sectors.
Sen suggests that maintaining macro-financial stability and investing in capex and manufacturing will sustain the multi-year 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 Textiles and Pharma API also likely to benefit. Despite the positive outlook, Sen noted valuation challenges for some sectors and maintained an overweight stance on Industrials, Discretionary, and Materials, while underweighting Financials and IT. He also prefers Smallcaps and Midcaps (SMIDs) over large caps, with a target of 24,000 for the Nifty 50 by December 2024.
Kotak Institutional Equities also expects the new government to continue focusing on development, growth, and liberalization. They foresee increased capital expenditure, supported 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. However, Kotak Equities noted the challenge of overvaluation in the market, with many sectors and stocks appearing overvalued relative to their fair value.
Motilal Oswal’s model portfolio remains aligned with domestic cyclical themes, remaining overweight on Financials, Consumption, Industrials, and Real Estate. Their preferred investment themes include Industrials, Consumer Discretionary, Real Estate, and PSU Banks, reflecting continued confidence in earnings growth.
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