BJP's Narrow Victory: Market Trades At Bottom; Time To Take A Punt?
The reaction could be a 15 to 20 per cent fall, however, considering the fundamentals and momentum of the economy, use this event as an opportunity, says expert
“Markets are like women, always commanding, mysterious, unpredictable and volatile,” said the late Rakesh Jhunjhunwala. Currently, investors cannot find a more relevant thought who witnessed the market mayhem on 04 June which wiped off approximately Rs 30 lakh crore.
The Tuesday trading session turned enormously volatile after the current regime seemed to secure a narrow majority. The BJP-led National Democratic Alliance (NDA) registered less than 300 votes, while PM Modi's Bhartiya Janata Party (BJP) won only 240 seats, way less than the fancy 400 target (Abki Baar 400 Paar, a slogan used by PM Modi).
In an unprecedented session, the market punished the verdicts of exit polls as Nifty witnessed a sharp fall of 8.5 per cent and ended nearly 6 per cent lower on Tuesday. Before this, Nifty had its worst session during the Covid-19 pandemic on 23 March 2020 when it ended on 7,606 levels with more than a 12 per cent dip in a single session.
The 50-stocks index, Nifty 50 experienced a bloodbath with 42 stocks getting dragged into the red territory with massive fall, while eight stocks traded with gains. Notably, Adani conglomerate stocks suffered the most as Adani Ports, Adani Green, Adani Enterprises and Adani Energy and Solution tumbled almost 20 per cent
Take Advantage Of Free Fall
Foreign institutional investors (FIIs) along with Domestic institutional investors (DIIs) sold heavily on 04 June. According to the exchange data, FIIs and DIIs sold stocks worth nearly Rs 16,000 crore. While such sharp falls are also noticed as a buying opportunity in the market for those who want to invest for the long term, experts dug deeper to discover such opportunities.
“It is neither easy nor sustainable to make money from such election-related market movement speculation. Any corrections and falls should be used as an opportunity to buy fundamentally robust companies. This is not the time to be experimental and invest in new-age companies at sky-high valuations,” said Divam Sharma, Founder and Fund Manager, Green Portfolio.
As individual investors, it’s a time to sit on the sidelines. Do not try to speculate and wait for the markets to digest the outcome. The reaction could be a 15 to 20 per cent fall, however considering the fundamentals and momentum of the economy, use this event as an opportunity, advised Sharma.
What To Buy
The question revolved around whether the market would entertain the coalition government or not. However, the continuation of BJP-led is expected but investors should also figure out which sectors should be bet upon.
“Political continuity is the anticipated outcome in which case the ongoing infrastructure and capital expenditure initiatives are likely to persist. Additionally, more ambitious ventures such as bullet trains, expanded highway networks linking additional cities, and waterway projects might be unveiled,” said Anil Rego, Founder and Fund Manager, Right Horizons.
He added that the key sectors in focus are Defence, Infra, Realty, Banking, Capital Goods, Power and Manufacturing. After the last two elections, Public Sector Undertakings (PSU) stocks peaked a few weeks after the election results in June. "We anticipate this could happen in June or July before the budget is unveiled in July," Rego mentioned.
Albeit, Amit Goel, Co-founder and Chief Global Strategist, Pace 360 shared a pessimistic view and said, “While BJP should be able to form the government again, the reform agenda of the government may go into the backburner. Investors should stick to the fundamentals and buy only the stocks with reasonable valuations. We believe Indian equities will go into a bear market and will fall by more than 20 per cent by April 2025.”
He further cautioned that investors should avoid the sectors which were market favourites till yesterday as the focus of the government may change. Consumer-based stocks would do well from now on as the government would try its best to repair the urban consumer and rural distress.
Banks
The benchmark index, Nifty Bank slumped nearly 8 per cent along with a mammoth 15 per cent fall in the PSU banks index. The fall reduced the year-to-date (YTD) returns of Nifty Bank. Amid the expectations of interest rate cuts from the central bank, banking and financial stocks are something investors should keep an eye on, according to the experts.
“Typically, a stable government focused on broader economic growth and more importantly, financial inclusion could pave the way for more positive developments in the banking and finance sector. While stability in policies and continuation can offer the financial sector the window to grow at its pace, fresh allocations, new policies, and broader reforms that account for financing companies and consumers could help expand NBFCs’ product offerings and service horizons,” highlighted Nehal Gupta, Director, Accelerated Money.
Then again, the NBFC sector’s growth and performance would largely depend on the government's capability to address the increasing liquidity and funding challenges, especially for the new-age industries such as electric vehicle ecosystem, drone-backed intensive agriculture or last-mile delivery, and renewable energy spaces, added Gupta.
Regulations Ahead?
Lately, the market watchdog, the Securities and Exchange Board of India (Sebi) also become proactive and showered several guidelines for the equity and commodity market. It also addressed the issue of fraudulent trading apps and prohibited exchanges from sharing data with third-party apps.
The market narrative also suggested that the next government could pave the way for further regulations, especially the capital gains tax on equities.
“I do not anticipate significant changes in stock market laws or taxes as historically NDA has leaned towards maintaining the status quo in these areas. However, regulation of the Indian options market to curb mindless trading and tougher regulations for SME IPOs would be beneficial. Any increase in capital taxes, however, would likely be perceived negatively by the markets,” said Anirudh Garg, Partner and Fund Manager, Invasset.
Garg advised investors to consider a minimum investment horizon of three to four years rather than speculating based on the election results. The anticipated volatility around the elections could negatively impact investment psychology. Therefore, it's prudent to maintain a balanced portfolio, focusing on both growth and quality.
