Moneycontrol
Last Updated : Mar 12, 2019 09:21 AM IST | Source: Moneycontrol.com

With an eye on elections, experts say don't ignore these 5 sectoral themes

Things were not so cheap in 2014 and stocks could be a lot more expensive as we go into 2019 elections. Hence the high beta names may give relatively subdued performance compared to previous elections, said Amar Singh of Angel Broking.

Kshitij Anand @kshanand

Lok Sabha elections are just a few weeks away and the action in the equity market has already begun. Trading in sectors such as banks, autos and capital goods has become very evident lately .

The Nifty Bank on March 11 reclaimed 28,000 in intraday trade while Nifty50 rallied over 11,100 to hit 2019 high. The market is witnessing heightened activity in the broader market and sectors linked to consumption are doing well, but this is not the first time we are witnessing this trend.

A historical analysis of past 3 general elections reveals that volatility sharply rises before Lok Sabha elections. Historically, capital goods, banks (private and PSU) and auto perform well during an election year, Elara Capital said in a note.

Lok Sabha elections will begin on April 11 and polling will be held over seven phases till May 19, followed by counting of all votes on May 23, the Election Commission announced the dates over the weekend.

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Meanwhile, as per the Elara note IT, banks and pharma do well after elections.

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The rally in the market is nothing short of a surprise after the Nifty hit an intraday low of 10,585 on February 19. Since then, the index has rallied by over 500 points, or nearly 5 percent, which suggests that the bulls are here to stay.

The S&P BSE Sensex reclaimed 37,000 while Nifty50 rose above 11,100 levels on March 11 despite muted global cues. It looks like the Street is factoring in a stable government at the Centre in the 17th Lok Sabha elections.

“We feel this rally still has legs and many stocks will continue to perform. Many small and midcap stocks were hammered out of the shape and are now recovering,” Devarsh Vakil, Head – Advisory (Private Client Group), HDFC Securities told Moneycontrol.

“The Nifty smallcap index witnessed a fall of 41 percent from highs in this correction. In 2013, smallcap index fell 36 percent from its high while in 2015 fall was 31 percent. So, the fall was very severe in this correction,” he said.

Vakil further added, apart from midcaps, generally infrastructure and capital expenditure related stocks do well in anticipation of large spending by the government.

“We prefer stocks in private sector banks, pharmaceutical, and two-wheeler sectors,” he added.

If one were to compare the post-election market scenario of 2004 and 2009, these elections happened at around market lows. Metals were at the bottom of the global cycle and banks were undervalued.

“Things were not so cheap in 2014 and stocks could be a lot more expensive as we go into 2019 elections. Hence, the high beta names may give relatively subdued performance compared to previous elections,” Amar Singh, Head - Advisory, Angel Broking told Moneycontrol.

Singh further highlighted sector-specific triggers for each of high beta names and for valid reasons. Let us look at it more elaborately.

Capital Goods: We have heard about the capital cycle turnaround for a long time. With a new government and a reformist touch, this sector may finally get a boost.

Autos: Autos continue to remain a solid consumer play and rural demand is up, if the latest auto and FMCG numbers are to be beleved. The correction also makes stocks attractive.

Banks: Banks and financials remain the staple diet for investors with a weight of more than 35 percent in the Nifty. Markets are betting on a turnaround in credit offtake.

Energy: This sector could be the dark horse in the coming years. While the vagaries of crude prices will continue, a new oil policy could make a big difference to the oil and gas producers. Extraction could be back in the reckoning in the coming years.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Mar 12, 2019 09:21 am
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