The possible victory of Prime Minister Narendra Modi and the BJP in the elections could be a positive sign for India's economy and capital markets, according to a latest Motilal Oswal report.
According to the report, the single-party majority government and resultant stability and continuity in policy-making, will be crucial for sustaining the country's economic momentum and is expected to enable the government to continue its economic agenda without significant political hurdles.
Talking about the exit poll results, the report notes that the exit polls underscore a massive pro-incumbency wave in favour of PM Narendra Modi. The report adds, "The BJP is anticipated to inch closer to 40 percent vote share on its own versus 37.3 percent in 2019, and the NDA is expected to touch 47 percent against 45 percent in 2019. The opposition,
Congress is also expected to improve its vote share to ~21 percent in 2024 from 19% in 2019, even though it still lags behind the BJP in vote count.
India's Goldilocks moment
The report noted that in the months leading up to the election, the equity markets experienced heightened anxiety and volatility with April and May 2024 seeing sharp fluctuations due to uncertainty of the political outcome. The brokerage estimates that with the ruling parties' win, markets could stabilize and return to a fundamentals-driven approach.
India, Motilal Oswal notes is currently enjoying a "mini-Goldilocks" period with strong macroeconomic indicators such as GDP growth at 8.2 percent in FY2024 and inflation being contained at around 5 percent. "The currency remains stable, and corporate earnings have shown substantial growth, with the Nifty ending FY24 with a 25% increase in earnings. Projections for FY25 and FY26 suggest a compound annual growth rate (CAGR) of 14-15 percent," the report noted.
India, the report notes also has seen a focus on manufacturing, capital expenditure, and infrastructure development which has bolstered economic fundamentals. Currently, valuations stand at 20 times one-year forward earnings.
"This verdict and consequent political stability and continuity in
policy-making will act like an icing on the cake and keep India as the cynosure of all eyes, in our view," the report suggests.
The brokerage continues to remain overweight on Financials, Consumption, Industrials, and Real Estate sectors, while their preferred investment themes include Industrials, Consumer Discretionary, Real Estate, and Public Sector Unit (PSU) Banks.
In large caps, some of the top investment ideas suggested by the brokerage include banks like ICICI Bank and State Bank of India as well as capital goods companies like Larsen and Toubro. In the mid cap space, the report suggested Indian Hotels, Godrej Properties and KEI Industries amongst others.
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