What stocks analysts are betting on, as exit polls predict Modi 2.0

Indian markets today gave a thumbs-up to exit poll predictions, with Sensex surging over 950 points. Most exit polls predict a second term for Prime Minister Narendra Modi with ruling BJP and its allies expected to get a comfortable majority. The broader markets also participated in today’s rally with both BSE midcap and smallcap index surging 2%. The actual results of Lok Sabha election will be announced on May 23. “We could see a small rally post May 23 election results if the results are in line with the market’s expectations,” says Kotak Institutional Equities in a note. But it cautions that Indian market valuations are not cheap.

“The priority of the next (possibly same) government will be to revive economic growth and investment although the macro-economic set-up is not very favorable,” it added.

“The likely continuation of policies and reforms is an added comfort,” says Jagannadham Thunuguntla, senior vice president and head of research at Centrum Wealth Management, who expects high-beta sectors like infra to do well. The Nifty infra and banking index today rose over 3%.

In case of a favoruable electoral verdict, broader markets could start to outperform, say Sanjiv Bhasin, EVP for markets and corporate affairs at IIFL. PSU stocks could also be another pocket to see outperformance, he adds.

Bhasin also remains positive on construction, insurance, capital goods, cement and corporate banks.

Sameet Chavan of Angel Broking also expects midcaps to shine. “The midcap index, which has not participated in the last one-and-a-half year, seems to be in a final stage of its price-wise as well time-wise correction. So in case of a favourable outcome, we expect midcap stocks to attract traders’ attention,” he said.

“We see 23 May as a binary event and a decisive majority for the current government (NDA) would be viewed as the better outcome. Defence, roads and renewable energy saw a pick-up in announcements and execution post 2014 elections. Industrial companies’ execution and order flow have improved, but 2019 has not seen the pre-election rally of 2014. We expect a strong post-election rally if the current government returns, as the election has been an overhang," said Jefferies India in a note to its investors.

Market analyst Sandip Sabharwal says in case NDA gets a comfortable majority, Indian markets will be able to decouple from global markets in the short term. For the next couple of weeks, election results will dominate the markets, he added.

“We have seen consumer demand plummet due to election uncertainty. If a stable government comes in, we can see a V-shaped recovery,” he says.

“Many consumption stocks are cheap. Auto will be a big beneficiary. Cement is a good story which has been doing well. Real estate could be a dark horse where sentiment may turn around,” he says.

He also expects banks and infrastructure stocks to do well.

“Banking stocks are already doing well so auto, infra, capital goods and cement stocks have potential for significant outperformance, if a stable government comes in," Sabharwal adds.

“Defensive bets like pharma and IT stocks could underperform as they are over-owned,” he adds.