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After a decade, India will now have a coalition government led by BJP in power. Since the market participants were expecting a clear mandate to the ruling party, the election results shocked the markets and both the key indices tanked on the vote counting day. However, the market recouped its losses with the NDA taking power once again.
Cafemutual spoke to fund managers to understand the impact of the coalition government on equity markets.
Ashish Gupta, CIO, Axis MF
Cyclical tailwinds continue to be strong for sectors such as industrials, infrastructure including power, locally-focused manufacturing, and utilities. Structural themes like financials and consumption should also be on a strong footing. With political uncertainty behind us, the private sector may now start implementing their plans. The capex cycle is already turning around and government related infrastructure spending should get a boost. The real estate sector is also seeing a significant upturn. We expect the focus to be back to companies and their earnings potential which are the backdrop for India’s long term growth story.
Christy Mathai, Fund Manager - Equity, Quantum MF
Under the previous government, one saw the growth of many capex-oriented sectors. These sectors are expected to see corrections in their valuations now.
I feel that cyclical sectors like consumptions, auto sales etc are expected to pick up due to the increase in rural demand. Apart from this, no major changes are expected in the equity markets.
Mahesh Patil, CIO, Aditya Birla MF
We expect the focus of the new government to shift towards the demand and consumption side as poll results pointed it out as one reason for lower vote share. Some sectors like the industrial or defence sector who went up ahead of time due to the previous government’s narrative might get a reality check. I also see a pick up in the quality stocks with more stability and strength. Also, a drop can be expected in momentum-based stocks, which were doing well until now irrespective of valuations. Overall, we expect the market growth to be balanced.
Rahul Singh, CIO - Equities, Tata MF
The election result is likely to lead to a more balanced market; risk-reward in large caps and underperforming sectors like banking and consumer appears more favourable.
On the other hand, there is likely to be greater scrutiny and valuation discipline in the performing sectors like capital goods, power, defence and manufacturing. The macro parameters are likely to remain largely stable and hence provide downside support to valuations.
However, the key data points to watch going forward would be the tilt of government policy and the union budget. More specifically any moderation in the capital spending outlook in favour of consumption support can further drive sectoral preferences.
Vinay Paharia, CIO, PGIM MF
I believe that a revival of high-quality high growth companies is expected to be seen with the formation of a new government. In the previous government, we were seeing low quality low growth companies doing well, in spite of valuations. This election has acted as a catalyst and is expected to change the narrative of the market.
