This time around, the election has gained prominence in light of India’s rising importance in geopolitics, its leading position in emerging markets, and the government’s aspiration to make India the world’s third largest economy from the current fifth position.
But Dalal Street investors don’t seem to be very apprehensive about the outcome this time and are rather sure about a third term for the incumbent government, led by Prime Minister Narendra Modi.
“Our assessment suggests a high likelihood of a comfortable majority for the BJP-led government, consistent with opinion polls…Given our assumption that the BJP is likely to secure power, we anticipate a continuation of their broad agendas outlined in the Manifestos of 2014 and 2019,” said Fisdom Research.
So far in 2024, the Nifty 50 is up just 1%, as unpleasant global factors and high valuations drove foreign investors out of Dalal Street. But the unprecedented inflows from domestic institutional and retail investors has restrained the downside.
In the first two months of 2024, DIIs have poured in Rs 52,354 crore into equities, whereas FIIs have sold stocks worth Rs 31,827 crore during the same period, according to data on StockEdge. The unprecedented domestic inflows indicates the growing confidence among home investors on India’s economic growth and are rather discounting the election outcome. Also Read | 5 sectors that could create wealth in 3-5 years
“The government has facilitated a balanced approach, with a lower fiscal deficit and capex-led growth. Investors seem confident of the continuity of the current policy framework at the centre,” said Neeraj Gaurh, fund manager at Axis Securities.
What does the historical trend say?
With the growing confidence among investors of political and policy continuity, history may repeat this time.
Historical data shows that the Nifty 50 has ended in the green on a three-month basis into the election results with an average gain of around 11% on four occasions in the last five general elections.
The maximum gain of 25% was seen during the 2009 elections, while a minimum gain of 8% was achieved in 2019 elections, said Neeraj Agarwal of JM Financial.
Asset Allocation Strategy
Notwithstanding the election outcome, most money managers are now shifting bets and also recommending a switch to largecap stocks as valuations have turned frothy in the midcap and smallcap segments.
Today we find more value in largecaps as compared to mid- and smallcaps, says Shridatta Bhandwaldar, Head – Equities, Canara Robeco Mutual Fund.
On similar lines, Gaurh recommends investors to go for multi-asset allocation and diversify portfolios rather than chasing highly-concentrated smallcap folios, given their last one-year return.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)