Daily Voice: This investment expert expects policy continuity & market stability with likely NDA win

If we look at previous general elections, while we saw general volatility in the stock markets around exit polls & after election results, markets have given positive returns on most occasions six months to one year post the results. Now with most exit polls out with 350+ seats for the ruling NDA almost what we expected, we don’t foresee much change in our strategy, which is in-line with our clients risk profiles and long term goals.

Also read: Expectations vs Exit polls: Brokerages' best case to play out as exit polls predict big victory for the BJP

In the unlikely event of exit polls going wrong by a wide margin from the final results on June 4, we may consider some tactical changes in our strategy to benefit from any significant change in indexes and benefit from the long term growth story of our markets.

Do you expect significant market reaction post election results?

We don’t expect markets to react significantly seeing the exit poll results which are quite close to what was expected. Market reaction can be significant if final results differ wildly from these numbers. There have been such occasions in the past like in 2004 where UPA won instead of the exit polls favoured NDA causing one of the worst market crash.

In 2014, NDA won a whopping 336 seats against exit polls average of 283 causing markets to rally intra-day and hit a lifetime high and on other recent occasions 2019, the winning party ended up getting more than what exit polls declared, so we may see a higher final number this time too.

Also read: Raamdeo Agrawal on Exit Poll: India’s market-cap will double to $10 trillion in next 4-5 years

Will you increase exposure to PSUs after election results?

For decades, PSUs have been tackling the challenge of efficiency in their operation with their fortunes often tied to government policies and directives. In the recent past, we have seen turnaround stories among them fuelled by current government’s favourable policies.

The recent growth in valuations of almost all the PSU stocks have been unprecedented, where average market caps of top 50 PSUs have grown about 4.5 to 5 times in the last 4 years. And we believe PSU stocks should continue to deliver healthy returns if the actual election results match exit polls and BJP-led NDA retains power, resulting in policy continuity.

Having said this, yes, we would look to increase exposure here especially in sectors where we can see operational efficiencies, adaptation of technology and macro push like defence, certain specific infrastructure development etc.

Also read: Markets will see an explosion, but next week will mark the grand final for 'Modi stocks': Sushil Kedia

Is the better-than-expected Q4FY24 GDP growth looking sustainable?

Lets first list the factors which drive the GDP growth, which are consumption, investments, government spending and exports. To put some numbers, the last quarter which is Q4FY24 GDP growth was 7.8 percent and the full fiscal year provisionally stands at 8.2 percent.

These numbers have been achieved due to various initiatives of the current Government be it economic reforms, attracting capital/investments, ease of regulatory framework, thrust on manufacturing, focus on exports and so on. These initiatives have been undertaken over the period of last 10 years, of which we are witnessing the growth in numbers now.

Also read: Exit poll to boost near-term market sentiment; investors eyeing policy reforms roadmap: Nilesh Shah Q&A

Given this, we believe till the government continues to undertake these measures, we would continue to be the fastest growing large economy although the journey may not be smooth as certain measures may unfold their effect on GDP number over a period.

Do you still expect significant double-digit returns from manufacturing theme in coming years?

Yes, with a sense of confidence. As a country in many areas we still manufacturing in low quantities especially when compared to our neighbour and manufacturing giant China. For instance the light motor vehicle, we produce about 4.9 Million units and China produces about 29.5 Million units. This is just 1 product, giving the sense of opportunity to scale.

Apart from Governments push through various initiatives like PLI being one of them, this sector has been witnessing major shift at adapting latest technologies, bringing further efficiency to reduce cost, building larger capacities and being globally competitive.

With all these factors, we believe this sector would continue to deliver in the coming times.

Do you see major announcements in Union Budget?

If one analyses the past Budgets of the current Government, one can see that all were mostly focused on maintaining fiscal prudence, increasing capital expenditure, giving PLIs, infrastructure push etc. With NDA coming back to power (which is a likely scenario post exit polls), we expect policy continuity with some additional reforms on land, taxation, healthcare fronts.

Recently current finance minister Nirmala Sitharaman also stated that the reforms will touch on all factors of production — be it land, labour, or capital. "I’ll also add one, which may not fit into the traditional definition of what factors of production are, and that is digital infrastructure."

But if the I.N.D.I.A. bloc wins, which looks unlikely as per exit polls verdict, all of the budgetary calculations may have to be redone to account for the poll promises made by the parties, such as a legal status for MSP, a debt waiver for farmers, and the Mahalakshmi scheme etc.

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