We believe that a large part of the new government policy would depend upon attracting foreign direct and portfolio investment to fill in the resource gap domestically
Initial trends show the NDA government is likely to come back to power with a majority. This certainly boosts market sentiments though there are serious challenges faced by the Indian economy like slowing consumption, squeeze on credit, fiscal deficit, global uncertainties that need to be addressed to support a sustained rally in the equity market.
We expect another 5-8 percent kind of gains in Nifty and Sensex and much better upside in mid and smallcap over the next few months. We believe that a large part of the new government policy would depend upon attracting foreign direct and portfolio investment to fill in the resource gap domestically.
Thus, one could see some supporting policy moves on that front by the government to encourage household savings and attract capital market investments.
Policy priorities and investment opportunities
Investment themes – 2 key themes remain: We continue to remain positive on private sector corporate banks (ICICI Bank, Axis Bank, Federal Bank) as key structural investment theme for the next two years. Also, we like specialty chemical/API space as structural growth theme (UPL, SRF, Atul, PI Industries, Granules, Hikal, Divis Labs, etc).
In addition to this, it is important to understand the priorities of the new government that would enable the investors to ride the rally and position the investment portfolios accordingly.
Priority goal 1: Rural development to ease farm stress through development of rural infra (roads, housing, etc) and boosting farm income; news reports suggest Rs 25,00,000 crore investments over the next 5-8 years.
Sectors/stocks in focus: Rural demand-driven consumer companies, farm equipment, rural financing companies, building material including cement and agri-inputs companies.
Priority no 2: Capital investment in infra development especially water linkage, roads among others; figure of Rs 10,00,000 crore stated in BJP manifesto and highlighted by Modi in his speeches (water is next big priority after toilets; to be done through river linking as key project).
Sectors/stocks in focus: Contractors, construction, cement, electric distribution
Priority no 3: National Security – defense/energy and PSUs
The author is Senior VP, Head – Strategy & Investments at Sharekhan by BNP Paribas.Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.