Five stocks set to benefit from the 2024 elections

Stocks based on the Modi government’s popular themes like Aatmanirbhar Bharat, Make in India, Namo Bharat, Bharat Mala, among others, will likely do well if Modi is voted back to power. (Photo: Hindustan Times)
Stocks based on the Modi government’s popular themes like Aatmanirbhar Bharat, Make in India, Namo Bharat, Bharat Mala, among others, will likely do well if Modi is voted back to power. (Photo: Hindustan Times)

Summary

  • These stocks could benefit the most from the third possible term for Modi. Do you own?

Stock market investors typically fall into one of two categories. The vast majority employ a basic, surface-level analysis in their investment decisions, which lacks depth.

For example, when tasked with selecting five stocks poised to benefit from the upcoming 2024 elections, many would opt for a straightforward approach. They might predict Prime Minister Narendra Modi's re-election and focus on five stocks that could gain from the Bharatiya Janata Party's return to power, often choosing those aligned with the Modi government's popular initiatives like ‘Aatmanirbhar Bharat’, ‘Make in India’, and similar themes. These stocks are selected with some consideration of their fundamentals.

This common approach, however, lacks a competitive edge since it mirrors the strategy of numerous other investors, limiting the potential for extraordinary returns.

The stocks associated with Modi's policies are expected to perform well if he is re-elected. However, the potential for medium-term gains may already be factored into their current prices, illustrating the limitations of this simplistic thinking.

To achieve market-beating or substantial long-term returns, investors need to adopt a more in-depth analysis, considering alternative scenarios and stocks not directly tied to the election's outcome.

Considering stocks that could benefit if Modi does not return to power presents a risky strategy given his strong likelihood of re-election. A more prudent approach might involve focusing on fundamentally strong stocks that are less affected by the 2024 elections, ones more closely tied to India's broader, long-term growth narrative rather than short-term political developments.

Five such stocks are recommended for attention in light of the 2024 elections:

#1 Maruti Suzuki Ltd

India’s largest car manufacturer has underperformed in the stock market in recent year this is well known. What came as a surprise recently is that for the first time in seven years, Tata Motors has gone ahead of Maruti Suzuki in the market cap race.

At the peak of the Covid crash, Maruti Suzuki was nearly 6x more valued than Tata Motors. That the Tata Group company has managed to turn the tables around speaks volumes not just about its turnaround but also about the underperformance of Maruti Suzuki.

So much so that Maruti Suzuki now trades at a PE multiple that’s considerably lower than its 10-year average.

However, you can never underestimate India’s largest car maker. It is getting battle ready with eight new launches being planned over the next four years and with most of it being in the red-hot SUV space.

Hence, this is one stock that you can certainly keep an eye out for.

#2 Whirlpool of India Ltd

Run a list of stocks that have underperformed in the last three years and Whirlpool of India sticks out like a sore thumb. The stock is down almost 50% over the last three years as intense competition and shrinking margins took toll on its profitability.

Whirlpool Share Price – 3 Years Performance. (EM)
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Whirlpool Share Price – 3 Years Performance. (EM)

However, it is quite capable of making a comeback given its established position in the refrigerator and washing machine segments, which together account for a majority of the company’s revenues.

As its ratings report points out, the company has maintained its market share, backed by its strong brand, established distribution network, new product launches, investment in R&D and potential demand in tier 2 and tier 3 cities.

Given these strengths, there is a strong chance that a turnaround is not far away and so is a place for this stock on your watchlist.

#3 ITC Ltd

All I can say about this Indian behemoth is that the valuations are still attractive from a medium to long term perspective. The stock is trading at a PE of 27x, slightly lower than its long term average of 28x-30x. In other words, it is not egregiously overpriced like its other FMCG peers.

Besides, the fundamentals are also not that bad. In fact, what has made the shareholders happy is the impending demerger of the hotels division.

60% of the ownership will be transferred to ITC shareholders while ITC will continue to hold 40% in this demerged entity.

Exiting or demerging the hotels business was a longstanding demand from ITC shareholders. It was gobbling up a lot of capital on account of its capital-intensive nature.

Now that the demerger has finally happened, the company will have more cash to spare which can be used to either pay more dividends or invest in something more productive.

As far as earnings growth is concerned, I believe that the company is quite capable of achieving a growth of 15% per annum in earnings over the medium term.

And this combined with the dividend yield of around 3%, puts the stock in a good position to earn more than decent returns for its investors.

#4 HDFC Bank

Again, a stock that has fallen on hard times but possesses excellent long-term fundamentals and is independent of whichever party comes to power.

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When the quarterly results of the bank came out last month, the street was not too happy with it. Amongst other things, the main bone of contention was the loan to deposit ratio of 110% post the merger. The management has acknowledged the need for it to decline.

It stated that the ratio would trend lower over the next several quarters and further stated that deposit growth must be 3-4% higher than the loan growth to bring down loan to deposit ratio. As of now, sequential deposits growth of 1.9% materially lags loan growth of 4.9%.

Not withstanding this minor blip, the bank’s strong franchise, the huge synergies post the merger and the long runway for growth, makes it a good stock to keep on your watchlist.

#5 Redington Ltd

Rounding off the list is Redington Ltd, a proxy to growth of Apple phones in India.

Yes, that’s correct. Warren Buffett’s biggest investment i.e. Apple has two key distributors in India – Ingram Micro and Redington India.

Redington is, therefore, a proxy to Apple's growth prospects in India over the coming decade.

Post pandemic, Apple has chosen to move a majority of its production facility from China to India. Also, its subsidiary Foxconn has committed more capital to India based capex. This bodes well for Redington given Apple's long-term plans for India.

The company currently derives almost 30% of its revenue from sale of Apple's devices. However, Redington certainly cannot rely on Apple alone for its future. Hence has already started reducing its dependence on the smartphone major.

With a high level of expertise in the IT, telecom, home appliances and consumer electronics sectors, the company has evolved from a distributor to a value-added supply chain company.

What further works in the company’s favour are the reasonable valuations and a strong balance sheet. Hence, with more levers for growth firmly in space, the stock does make a worthy addition to your Election 2024 watchlist.

In Conclusion

These five stocks offer a strategic choice for investors looking beyond the immediate effects of the 2024 elections, focusing instead on companies with strong fundamentals and attractive valuations. 

Such an approach can potentially yield significant returns regardless of the election outcome, making these stocks worthy of consideration for any investment watchlist.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

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