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Business News/ Market / Stock-market-news/  Brokerages optimistic on cyclical stocks; eye economic recovery under Modi leadership
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Brokerages optimistic on cyclical stocks; eye economic recovery under Modi leadership

L&T, Bhel, Shriram Transport and LIC Housing Finance are preferred cyclical picks

Brokerages are optimistic that the economy may recover gradually under the leadership of Modi, who is widely perceived as pro-business. Photo: Hindustan Times/MintPremium
Brokerages are optimistic that the economy may recover gradually under the leadership of Modi, who is widely perceived as pro-business. Photo: Hindustan Times/Mint

Mumbai: Brokerages are betting on cyclical stocks on hopes of an economic recovery after exit polls predicted that Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) will secure a majority in the Lok Sabha and Narendra Modi will be prime minister.

Cyclical stocks will rise quickly when economic growth is strong and fall rapidly when expansion slows.

“We remain constructive on markets, driven by a cyclical economic recovery, albeit mild given realities of fiscal consolidation and inflation moderation imperative," Gautam Chhaochharia and Sanjena Dadawala of financial services firm UBS said in a note on Monday.

Any outcome which improves corporate and investor sentiment can help accelerate the recovery, they said. “A lot of investors hope that a Modi-led BJP government can drive a sharp recovery aided by better governance and policy making," Chhaochharia and Dadawala said.

India, Asia’s third-largest economy, expanded at a mere 4.5% in 2012-13, its slowest in a decade. The government has forecast the economy will grow 4.9% in 2013-14.

Brokerages are optimistic that the economy may recover gradually under the leadership of Modi, who is widely perceived as pro-business.

UBS said its preferred cyclical picks such as Larsen and Toubro Ltd (L&T). Bharat Heavy Electricals Ltd (Bhel), ICICI Bank Ltd, Shriram Transport Finance Co. Ltd and LIC Housing Finance Ltd.

Economic growth will gradually recover to 5.4% in 2014-15 and 6.5% in the following financial year, led by an improvement in consumer and business confidence, recovery in global growth, led by a US recovery, a stable rupee and falling inflation, and the government accelerating reforms, Bank of America Merrill Lynch said in a note on Monday.

Its analysts Jyotivardhan Jaipuria, Anand Kumar and William Chan said they continue to favour domestic investment strategies and highlighted three investment themes.

The first one was high-quality cyclicals such as Maruti Suzuki India Ltd and ICICI Bank, while the second one was stocks with reform exposure such as Oil and Natural Gas Corp. Ltd (ONGC). Another theme they pointed to was small exposure to beaten-down deep cyclical stocks as a tactical strategy, including state-owned banks and infrastructure stocks such as State Bank of India and Jaiprakash Associates Ltd.

The formation of a stable government, as suggested by the pre-election opinion polls and post-election surveys, will set the stage for medium-term economic recovery and fiscal improvement, according to Kotak Securities Ltd, a broking firm.

“We suggest investors play the economic recovery theme through private-sector banks and automobiles sector and the fiscal consolidation theme through PSU (public-sector undertaking) energy stocks," Kotak analysts Sanjeev Prasad, Akhilesh Tilotia, and Sunita Baldawa said in a note.

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Published: 13 May 2014, 03:55 PM IST
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