Daily Voice: Time to look for new gems that emerged in panic selling, says this investment strategist

Elections are basically an independent event which are decided on by a very complex set of factors by the voters. Voters focus on not just economic factors but several other factors, including social and cultural. In short, they are not just about economic development.

However, stock markets are practically only and only about economic development. Of course, there is another overlaying factor in the stock markets of the psychology of Mr. Market. When Mr. Market is in euphoria the market is likely to be overvalued and when Mr. Market is in depression the market is likely to be undervalued.

Paraphrasing an analogy from Cricket, Elections in India are a game of glorious uncertainty. Given that, it looks likely that a stable government will be formed and there is likely to be policy continuity with some twists.

However, Mr. Market looks depressed and for us scientific investors it is a time to do a deep dive and look for new gems which might have emerged in the panic selling.

Where do you want to bet on significantly now, especially after election verdict?

We think that Technology, Digital Transformation & AI remain global themes which are immune from Indian politics. So that is one sector which remains on top for us. Private banks are likely to be mostly immune. With any stable government, the public sector banks, too, remain attractive, both on growth opportunity and valuations.

With any stable government the economic growth has to happen powered by the Power sector; which happens to be significantly undervalued.

Of course, depending on how things evolve one has to worry about NPAs in the banks and also the discoms not paying up to the generators. However, these issues will take 2-3 years to evolve and show up on the books.

We would also like to emphasize to investors that there should be significant allocation to global stocks so that their portfolios are more diversified and much more stable from a capital allocation point of view.

Do you still see Sensex at 1,25,000 mark in the next five years?

Well, we never try to predict the market levels, but we don’t think that this target for Sensex would be impossible. Depending on whether a stable government will be formed and what are its policies, this level is possible and in some cases could be come quite likely. But that depends on the specific policies which are implemented.

Keep in mind that this is less than 11 percent CAGR over the next 5 years. Even with a real GDP growth rate of 6 percent and inflation of 5 percent, an 11 percent nominal GDP growth rate is possible.

Do you see further major correction possibility in second half of 2024?

In a scenario of a stable government with continuity in terms of policy, it is unlikely that a major correction will happen in H2 2024. If an unstable government gets formed, then the market is likely to remain challenged and could dip further even in the near term.

Our subjective probability estimate is towards a slow and steady progression in the market as specific fundamentals are reported in the economy and company financials.

Do you see major reforms announcements post-election results?

Yes, we think these are quite likely, but they are likely to be focused on reforms which are non-controversial, meaning reforms which no one can oppose. For example, PLIs for some sectors, incentives for things like renewable energy or electric vehicles or clean hydrogen. Or things like education and healthcare reforms.

More controversial decisions analogous to GST and demonetization might happen once stability of the government is established.

Do you still like to stay with PSUs?

On the large order books, huge growth opportunity and low valuations, we will remain with those PSUs. The PSUs, just like any other non-PSU companies which are overvalued or which don’t have strong balance sheets or large growth opportunities, are likely to be trimmed from the portfolio since PSU or not, all our portfolio companies should be compliant with our scientific investment framework.

Do you think the FIIs will delay the investment into India?

Yes, FIIs will wait to see a stable government sworn in and also the specific ministers to get a hint on the policy tilt before doing large inflows. However, a trickle will start coming soon.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.