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Business News/ Markets / Stock Markets/  Lok Sabha Elections 2024 trading strategy: Investors are overestimating gains, says Diwakar Rana of Prudent Equity
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Lok Sabha Elections 2024 trading strategy: Investors are overestimating gains, says Diwakar Rana of Prudent Equity

Diwakar Rana, Senior Research Analyst at Prudent Equity, advises investors to focus on company-specific growth triggers and look for growth at a reasonable price amidst market volatility and overvaluation.

Diwakar Rana, Senior Research Analyst at Prudent Equity Premium
Diwakar Rana, Senior Research Analyst at Prudent Equity

With the results of general elections 2024 just a few days away and markets almost near peak, Diwakar Rana, Senior Research Analyst at Prudent Equity, says the traditional valuation norms have been abandoned, and new procedures are being used to support the current pricing. Everyone has begun to buy into the new era and new theme. A surge of over-optimism and overconfidence is unleashed, leading people to overestimate their gains, and underestimate and ignore the potential investment risks. Amid the volatility and overvaluation, the investor should hunt for the company-specific growth triggers and look for growth at a reasonable price, he advised. 

Edited excerpts:

Sensex regained its 76,000 mark and Nifty hit 23,000 recently. How much more gain do you expect post poll outcome, especially now that there is no uncertainty?

The major indices are trading at a premium compared to the past ten years, and the valuations are fairly stretched. The markets are in a euphoric state, and following the election, they might stay that way for a while. Therefore, it is advisable to be nimble and selective, also it will be wise to concentrate on businesses that exhibit consistently strong earnings growth and are available at reasonable valuations.

Read here: Market may go down 15-20% if BJP secures less than 250 seats, says Ruchir Sharma

Considering the market situation, is it advisable to take partial profits now or should one wait until the election results and budget?

The future is unknown to everyone, so we must concentrate on the present. The decision to invest or not should be a function of the current situation and not governed by prior experiences and future uncontrollable outcomes. The focus should be on the individual companies; if valuations have risen, profits should be booked; otherwise, companies should be held. What the market thinks should not bother the investors who are holding good growth businesses with a long-term investment horizon in mind.

The largecaps have now turned outperformers over the midcaps and smallcaps. Do you see this trend continuing?

The markets hate uncertainty and as soon as the volatility increases, the smallcaps and midcaps go out of fancy, investors run for capital protection rather than appreciation. The current volatility has led to some buying in the blue-chip companies. For the last 12 years, we have always been small and mid-cap investors and we believe that big wealth is created in the small and mid-cap space and this shall continue in the coming future.

Read here: Lok Sabha elections 2024 trading strategy: Poll-driven equity weakness buying opportunity, says UBS

The FPIs have been selling. Will the likely third term of Narendra Modi as PM soothe their fears?

The Middle East's conflict scenario hurts net importers like India, which the FIIs dislike. They also want consistency in governance. A majority win of the ruling administration might defuse FII tensions by ensuring the continuation of the roadmap and policies.

What strategy should investors follow now, amid so much volatility?

Everyone has begun to buy into the new era and new theme. Traditional valuation norms have been abandoned, and new procedures are being used to support the current pricing. A surge of over-optimism and overconfidence is unleashed, leading people to overestimate their gains, and underestimate and ignore the potential investment risks. While buying into a new theme can be fun, more insight and conviction is derived from looking at the companies from a bottom-up perspective. Amid the volatility and overvaluation, the investor should hunt for the company-specific growth triggers and look for growth at a reasonable price.

Read here: Foreign investors may no longer be overweight on Indian equities: Chris Wood

Any particular sector you believe will perform exceptionally post elections?

We have a strong positive outlook on real estate, banking, infrastructure, and housing financing. In our opinion, India's growth trajectory has just begun and there is still a long way to go. All of these industries will yield strong performance in years to come. In the upcoming years, infrastructure companies can have revenue growth of 15% to 20%, and some are even anticipated to see growth of above 30%.

The banking and housing finance industries are the backbone of the expanding economy and are positively correlated with the GDP of the nation; in other words, as the nation grows, so too will the banking industry. In the upcoming years, these companies can increase their loan books by more than 20%. The real estate sector is one of the sectors that is booming due to the increase in income, increased number of households, and urban migration. Many markets like NCR and MMR have seen a huge surge in demand for luxury projects.

Read here: General Elections 2024: How different poll outcome scenarios may impact equity, forex and bond markets

One piece of advice for new investors?

We believe investors should be selective while making a bet on any company. In this market, the companies with the highest likelihood of earnings growth should be the primary focus, and the thesis should not be focused solely on one long-term industry story.

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Published: 28 May 2024, 03:52 PM IST
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