Dear Reader,
Stock markets were anticipating a landslide victory for the NDA in the 2024 general elections, but Tuesday's counting gave them a rude jolt. The benchmark stock market indices Nifty and Sensex plunged after early results indicated a lower-than-expected majority for the NDA.
The Congress-led I.N.D.I.A alliance gained significant ground in the Lok Sabha elections. However, with the opposition alliance still falling short of the majority mark in the Lok Sabha, the NDA may retain power at the Centre. At 2:20 pm, the NDA alliance was leading in 292 Lok Sabha seats, slightly higher than the simple majority of 272 seats, while the BJP was leading in 238 seats. If these numbers hold when the final results are declared, the BJP will not attain majority on its own compared to the previous term when it had 303 seats, but it can return to power with the support of its alliance partners. The return of an NDA government should mean policy continuity, even though the pulls of coalition politics can extract a toll on governance.
The loss of ground in crucial states of Uttar Pradesh and Maharashtra will lead to a policy rethink and may warrant more pro poor and pro farmer measures. Note that states such as Maharashtra and Karnataka are facing a drought.
“While it is still early days, it is very apparent that the stress in rural India and overall mass consumption will garner higher focus,” writes Madhuchanda Dey in this piece.
At the same time, an NDA government is unlikely to discard its infrastructure development-led growth focus. The BJP manifesto focused on farmer welfare, health, improvement in quality of living, entrepreneurship, clean energy transition and development of manufacturing and infrastructure.
The second term of the Modi government saw a significant increase in capital expenditure, giving a fillip to road construction, defence indigenisation, modernisation of railways, strengthening of manufacturing through production linked incentive schemes and optimisation of electricity grids, power plants.
While the measures boosted order inflows for companies in the defence and infrastructure sectors, euphoric investors sent the stocks to record highs, creating froth in certain segments of the markets.
Public sector enterprises and companies linked to the government policies saw massive re-rating. Bharat Electronics which was trading at 13 times one year forward earnings multiple in 2019 re-rated to 43 times. Similarly, companies in the power and utilities sectors re-rated significantly.
In this backdrop, the correction in these stocks do not come as a surprise. That said, investors should not lose sight of the bigger picture. India is firmly on the defence indigenisation path. Power generation capacities are moving towards optimal utilisation levels and demand for power producers such as NTPC is unlikely to ease anytime soon.
The key, therefore, for investors to watch out for is stock valuations. Steep falls like this do offer an opportunity for investors to buy quality stocks at lower prices and hold them for long term returns.
“While the market volatility is high and the picture is changing by the second, the market is throwing an opportunity to buy the India story at a more reasonable valuation than the past,” adds Madhuchanda Dey. Do read to find her views on large cap stocks.
Our Research Team has put out several incisive pieces on stocks and sectors, post the market correction on Tuesday. One such sector is housing finance stocks. Irrespective of the election outcome, some sectors like housing will remain a focus area for policymakers, argue Neha Dave and Khushboo Rai.
In short, while investors may expect volatility in the days to come, they should also be on the lookout to spot profitable opportunities that are likely to be thrown up.
Investing insights from our research team
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Tracker
Pro Economic Tracker | Active workforce weakens, power, consumer sentiment improve slightly
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