Market post Lok Sabha elections: Not PSU or railways but these sectors to remain in focus in near term

Traders and investors should be cautious and consider focusing on defensive and non-government-driven sectors such as FMCG, Telecom, and Pharma stocks.

Vaamanaa Sethi
Published5 Jun 2024, 09:13 PM IST
Indian stock market
Indian stock market

The Indian stock market witnessed the worst crash in four years, experienced an almost a decline of over 6 per cent on June 4 after Bharatiya Janata Party (BJP) fell short of securing a clear majority in the 2024 Lok Sabha elections.

The market had expected Prime Minister Modi securing a consecutive third term with an absolute majority in the lower house of Parliament which would have benefited the Indian economy and the stock market.

Also read: Election Results 2024: Here's what to expect from Indian stock market and what should be your trading strategy

Market analysts had anticipated PSU, defence, railways and renewable energy stocks to outperform post elections. However, experts are now skeptical as the election outcomes fell short of expectations, leaving the BJP in a position where it must rely on the NDA alliance to establish a government, causing concern among investors.

Which sectors to remain in focus post elections?

Brokerage firm Emkay Global recommended investors to switch from PSUs and Capital Goods to FMCG stocks.

"We see Narendra Modi returning as PM but in changed circumstances. The broad direction of the economy is unlikely to change, though factor market reform and privatization are off the table. India is likely to now derate due to higher risk perception. Switch from PSUs and Capital Goods to FMCG and buy Indian equities if the Nifty falls below 20,000 (18x FY25 PER)," the brokerage firm said.

Investors are urged to steer clear of PSUs and capital goods sectors as they appear to be the most vulnerable at the moment. However, there's optimism regarding the resurgence of consumption, particularly in FMCG and value retail segments, which are expected to make a robust comeback. 

Also read: Election results shocker! PSUs unlikely to re-rate, FMCG, private banks in focus, says PL; lists top stock picks

Rupen Rajguru, Head Equity Investments and Strategy, Julius Baer India, said that IT and healthcare sectors are also likely to outperform capex oriented sectors.

“In the near term defensives (FMCG, IT and Healthcare) will outperform capex oriented sectors. Additionally, some of the sectors with strong narratives - PSUs, Defense, Railways will take a breather and can potentially see some de-rating from the current near all-time high valuations,” Rajguru said.

In the longer term, Rajguru maintains his overweight stance on Financials, Autos, Real Estate, and select Industrials/Manufacturing companies."

Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd, advises investors to focus on defensive and non-government-driven sectors. “ Traders and investors should be cautious and consider focusing on defensive and non-government-driven sectors such as FMCG, Telecom, and Pharma stocks. The upcoming budget and quarterly earnings reports will be crucial events that could influence market movements,” Tapse said.

How to trade in Indian market post elections?

Tapse further added that the stock market is likely to remain volatile in the short term even as the NDA-led BJP is set to form the government for the third time, making history.

Given the known factors, it's advisable to allow some time for the markets to stabilize following the unexpected election outcome, he said.

Also read: Investors return to Indian equities with consumption sectors in spotlight

Experts advise traders to remain cautious about about investing in momentum stocks or small cap stocks which outperformed in the last two years.

“In the current market scenario, the investors should remain cautious about investing in momentum stocks or small cap stocks which have remained overheated over the past two years. Any sustained period of sideways or downward movement in momentum stocks can trigger a sell-off in these stocks. Investors, therefore, should consider the risk involved before making such investments,” said Vaibhav Porwal, Co-founder, Dezerv.

Porwal added, "Having said that, a steep fall in the market without any structural change in the fundamentals must be regarded as an opportunity. We believe that the investors should capitalise on this opportunity for fresh investments in equity.

Also, investors should keep in mind that a BJP-led coalition government is not necessarily bad for the economy, and this is not the first time we will see a coalition government. From 1989 to 2014, our GDP grew by more than 8% annually while a coalition government was at the Centre. What we saw in the markets yesterday was a knee-jerk reaction. As the speculative trades built around election results unwind and as clarity around the new government emerges, markets will find their ground."

 

 

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First Published:5 Jun 2024, 09:13 PM IST
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