Sectors & stocks analysts are betting on post the state poll outcome

This boost to the investor sentiment, said analysts at Jefferies, should augur well for domestic cyclical sectors

The S&P BSE Sensex and the Nifty50 have hit record highs amid the poll outcome-triggered bull frenzy at the bourses. Most analysts feel that the indices are on course to rise further over the next few months – till the general elections – albeit amid intermittent corrections - largely triggered by global developments.

Bharatiya Janata Party's (BJP’s) win in the three state elections of Madhya Pradesh (MP), Rajasthan and Chhattisgarh, analysts at Jefferies believe, reinforces the consensus expectations of a Modi win 2024 national elections with a greater likelihood of over 300 seats for the BJP.

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"We see significant scope for the S&P BSE Sensex and the Nifty50 to gain from the current levels. The S&P Sensex can gain around 5 per cent in the next 3 - 4 months and it is likely to cross the 71,000 mark before general election commences in 2024," said G Chokkalingam, managing director for research at Equinomics Research.

This boost to the investor sentiment, said Mahesh Nandurkar, managing director (MD) at Jefferies, should augur well for domestic cyclical sectors viz. banks, industrial, power, property and mid-caps. 

"Competitive populism from both the Bharatiya Janata Party (BJP) and Congress is also clearly visible,” Nandurkar wrote in a recent co-authored note with Abhinav Sinha and Nishant Poddar.

Post the election outcome, among sectors, the maximum gain was visible in financial sector stocks. While the Nifty PSU Bank index rallied 3.88 per cent, the Nifty Bank, and Private Bank indices gained 3.6 per cent each on Monday - a day after the state poll outcome was announced. The Nifty Financial Services index, too, rallied 3.25 per cent. Power sector stocks, such as Power Finance Corporation (PFC) and REC, too, were among the top gainers.

With hopes of policy continuation post the general election outcome, analysts at Elara Capital expect the limelight now to shift to rural and healthcare-focused stocks with the BJP’s execution of schemes being more clinical and targeted.

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The victory in the Hindi heartland over the weekend, they said, should further diminish expectations of a fuel price cut at the retail level, and hence should provide a leg-up to performance of oil marketing companies (OMC) stocks.

"With focus shifting to election preparedness and related spending, impetus to new ordering activity is moderating even as the private sector adopts a wait-and-watch approach. We see order inflow momentum weakening for capital goods and infrastructure companies at least until Q2FY25," wrote Garima Kapoor, Subhankar Sanyal and Shweta Roy of Elara Capital in a recent note.

Those at Emkay Global, on the other hand, expect the mid-and small-cap (SMID) stocks to continue their upward march over the next few months as the overall markets remain buoyant. Global headwinds, they believe, are dissipating and the geopolitical uncertainty, too, is fading. This, they said, is also reflected in crude prices, which are off their September-October peaks

"Fears of a hard landing in the US have also faded in the last few weeks. We see this recent rally continuing, with SMIDs leading from the front. Our favored sectors are two-wheelers, chemicals, hotels and mid-size financials. Key avoids are consumers and large financials," wrote their analysts in a post state poll outcome note.

Sector-wise, banking, finance and insurance (BFSI) and PSU stocks, said analysts at ICICI Securities, are likely to accelerate outperformance while auto, power, capital goods, too, are likely to continue to move north.

"Metals and large-cap IT provide favourable risk-reward. On the stock front, in  the large-cap segment, we prefer GAIL, NTPC, State Bank of India (SBI), LTI Mindtree (LTIM), Adani Port, Larsen & Toubro (L&T), Tata Steel, Sun Pharma. In the mid-cap segment, Bank of India, HEG, Gujarat Industrial Power, Engineers India, Vardhman textiles (VTL), Century Ply, CESC, FSL, NHPC and Endurance Tech are looking good,” they said.