High to High: Market momentum shifts from Modi stocks to defensives

Consumer, tech, and healthcare stocks have surged since June 3.

After hitting a fresh high on June 3, the day after the exit poll results, the Nifty reclaimed its peak on Friday in a rather eventful week dotted with greed and fear. But even as the market reclaimed its peak, the stocks that have raced ahead are not the ones that were in momentum in the run-up to the elections.

Price performance of stocks in the BSE 500 pack between June 3 and June 11 shows that the flavor of the market has distinctly changed, with momentum moving away from the so-called ‘Modi stocks.’ The leaders, on the contrary, are stocks that hadn’t performed well in the run-up to the elections.

Notably, consumer, tech, and healthcare stocks have surged, while public sector and Adani group stocks have seen a sharp correction since June 3, when the market spiked in an euphoric response to the favorable election verdict predicted by the exit polls.

Consumer-related stocks surged due to expectations of increased government spending fostering rural revival and consumption. Analysts suggest focusing on defensive sectors like auto, consumer, IT, and pharma.

Meanwhile, PSU and Adani group stocks were under assault as they did not rebound at the pace at which other stocks did, following the slaughter on Tuesday. They were weighed down by the feeling among investors that the government might go slow on reforms and pull back on capex, which could impact momentum in these stocks.

Since June 3, Varroc Engineering, an auto components company, and IIFL Finance led the pack of gainers with gains of 22 percent each. Bikaji Foods International, Avanti Feeds, Tejas Networks, Bayer CropScience, and Emami surged by 20 percent each. Mastech, Zensar Technologies, and Devyani International rose by 17 percent each.

On the losing side, Adani Energy Solutions Ltd saw the biggest fall at 16.2 percent, trailed by REC Ltd and Adani Total Gas, both down 15 percent. PSU firms such as Union Bank of India, BEML, PFC, PNC Infratech, Adani Power, and Indian Bank saw around a 12 percent decrease.

In its latest note, Kotak Institutional Equities phased out capital goods and PSU bank stocks due to poor reward-risk balance after a sharp rally. Emkay predicts short-term market derating due to increased risk, advising against PSUs and capital goods but foreseeing a rebound in consumption, especially in FMCG and value retailers, and expressing positivity about healthcare.

India's PM Narendra Modi has kept the key ministers in their roles in the new coalition government, ensuring policy consistency. Nirmala Sitharaman remains Finance Minister, Amit Shah as Home Affairs Minister, Subrahmanyam Jaishankar as External Affairs Minister, Piyush Goyal as Commerce Minister, and Nitin Gadkari as Transport Minister. Some sections of the market believe that reappointing key ministers alleviates market concerns about the new coalition government, especially regarding fiscal policy.

Yet, there are others who are skeptical, anticipating that the loss of seats in key states like UP and Maharashtra in the 2024 general election may prompt the government to prioritise social welfare initiatives. With Maharashtra and Bihar scheduled for state elections in 2024 and the Budget expected in July, the government may allocate more funds for social welfare schemes, analysts say. This could potentially boost rural income in the near future, which is why there is buoyancy in consumer stocks, analysts reckon.

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.