Global brokerage and research house, Nomura, expects the general elections to be held as per schedule in 2019. The government, it says, is likely to focus on rural and agricultural economy in the run-up to the event and highlights five stocks that are likely to gain in this backdrop.
“We expect the Lok Sabha elections will be held in May 2019, as scheduled. We don’t expect early elections. The government will endeavour to implement the schemes and showcase the success to the electorate, in our view,” point out Saion Mukherjee, Neelotpal Sahu and Sanjay Kadam of Nomura in a co-authored report titled 'India Equity Strategy: Road to elections.'
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Nomura’s bottom-up assessment pegs the seat-count in range of 181 – 308 seats for the Bharatiya Janata Party / National Democratic Alliance (BJP/NDA). As a base case, they expect the BJP/NDA to emerge as the single largest bloc and would have the best shot at forming the next government.
If the Narendra Modi – led NDA does assume power in 2019, Nomura sees policy continuation, which in turn, should help sustain market multiples. On the flip side, failure of the incumbent government to come to power implies formation of an unstable coalition government. This could adversely impact the implementation of policy reforms and important policy decision making initiated by the incumbent government, which could hurt market sentiment thereby limiting valuation multiples, Nomura says.
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Though their analysts expects the markets to remain choppy over the next few months, they have kept the December 2018 target for the S&P BSE Sensex unchanged at 11,380 levels from their earlier forecast.
“We are overweight on financials (particularly retail private banks and insurance), autos, oil and gas, infrastructure/construction and healthcare. We are underweight on IT, consumer staples and cement,” the report says.
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The following five stocks, it says, should benefit from the government’s focus on rural economy and infrastructure development.
Mahindra and Mahindra Financial Services: We like rural asset financiers among the NBFCs, given the cyclical tailwinds, both in terms of election-led pick-up in activity and two years of good monsoons
Hero Motocorp: Hero Motocorp has around 50 per cent of its two-wheeler volumes coming from low-per-capita-income states and stands to be a key beneficiary of any improvement in rural demand.
Crompton Greaves Consumer Electrical: CGCEL is a major player in fans (43 per cent of its FY17 revenues) While the urban segment is highly saturated, the rural penetration of fans is still low at 65 per cent. As part of its announced strategy, the company will focus on agricultural pumps as well.
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Mahindra and Mahindra: M&M is likely to be a key beneficiary of a recovery in rural demand, in our view. M&M is the leader in the tractor segment, where the growth outlook remains strong. The company had around 42.7 per cent market share in the segment in FY18, and it accounted for around 28 per cent of its FY18 revenues.