The General Elections 2024 are on their last leg with voting already completed in nearly 90% of parliamentary seats across the country. If the BJP-led government comes to power, it's likely that the new government will give a major reform push to areas such as ease of doing business, measures to drive higher flows into government bonds, a simplified tax code, widening the GST ambit, etc, according to the latest note by brokerage Sharekhan.
If the BJP retains power for a record time, the brokerage expects domestic cyclical sectors such as infrastructure, industrials, defence, capital goods and automobiles, to continue to be the major beneficiaries.
The brokerage says domestic cyclical sectors such as infrastructure, industrials, defence, capital goods and automobiles will also continue to be the major beneficiaries. In its portfolio strategy, the brokerage has stuck to multi-year investment themes of the 3Cs - Capex, Capital and Consumption. "For 2024, we maintain our stance of increasing focus on large caps and cutting exposure to small and micro caps; we also advise investors to start accumulating select IT and specialty chemicals stocks."
Notably, most pre-election polls suggest a comfortable victory for the incumbent BJP government, maintaining its single-party majority in the Lok Sabha for the third time in a row. However, the low overall voter turnout as compared to 2019 is keeping the market mood jittery on the possible loss of some seats. At the end of the sixth phase, 2024’s voter turnout stands a tad lower at 66.4% versus 67.4% in 2019, though it is still much higher than the historical average.
Sharekhan says the current market volatility would settle down by June 2, after the exit poll outcome and the focus would shift towards the most likely outcome of the BJP emerging as the single-largest party, with a stable government and policy continuity along with new reforms rush.
The brokerage says under Modi 3.0, it expects a major structural reform rush though the magnitude of the same would depend on the number of seats won. "In setting a roadmap for Viksit Bharat 2047, we anticipate major policy reforms for Ease of Doing Business to attract FDI investments and sovereign rating upgrades, driving higher flows into government bonds given their inclusion in global bond indices and other measures pertaining to judicial reform, Uniform Civil Code, land bill, a simplified tax code and bringing more products into the GST ambit."
In the short term, after the election outcome, for the next two weeks, the brokerage expects the small & mid-cap space could outperform large caps, with domestic cyclical sectors and PSUs in focus. “After that, in the run-up to the Union Budget 2024-25 (to be presented in the first week of July 2024), there might be a possibility of profit booking with anxiety around tax overhaul, while lagging sectors such as Pharma, FMCG and IT would outperform."
In the case of a negative scenario, the brokerage says market sentiments could take a beating on uncertainties around political stability and some knee-jerk reaction could be seen.
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