BJP's landslide victory in three states a big positive for equities, economy; Nifty seen touching 20,800 soon: Experts

Assembly Election Result 2023, Stock market news: The incumbent BJP’s performance in avoiding anti-incumbency and retaining a big state like Madhya Pradesh (5th consecutive term) while regaining Rajasthan and Chhattisgarh should provide them with a good tailwind for the 2024 general elections, note analysts.

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Assembly Election Result 2023, Stock market news: Domestic equities are poised for a strong rally ahead, as the Bharatiya Janata Party's (BJP) strong showing in the state assembly elections will provide comfort to the markets regarding political stability. The incumbent BJP’s performance in avoiding anti-incumbency and retaining a big state like Madhya Pradesh (5th consecutive term) while regaining Rajasthan and Chhattisgarh should provide them with a good tailwind for the 2024 general elections, note analysts.

The BJP registered a landslide victory in three state elections, which are being referred to as the semi-finals of the mega event, the Lok Sabha Elections, scheduled to be held in 2024. The election outcome was much better than political pundits' analysis and exit polls.

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Here is what D-Street analysts make of the election result and its impact on the economy and market.

Nuvama Research

The BJP’s decisive wins in the high-decibel bipolar contests in the Hindi heartland imply its firm footing in the 2024 general elections. From an economic standpoint, this lessens the risk of a populist turn and bodes well for continued government capex. Markets are likely to cheer the electoral outcome for now as it abates political risk. Even so, the medium-term outlook is contingent on earnings, liquidity, and rates.

Economic implications: Capex likely to sustain; populist turn unlikely

The ruling party’s strong performance provides it with political capital to pursue the infrastructure push. Concurrently, it lowers the need for a populist turn. Accordingly, the anticipated rural spending push may not come through.

Market implications: Political risk significantly contained

These election results are certainly a cut above market expectations. And markets, to that extent, will cheer the outcome in the near term. That said, eventually, fundamentals—earnings, liquidity, and interest rates—will have an
upper hand in shaping the market outlook over the medium term.

Philip Capital

Analysts at the brokerage said that they have been positive on Indian equities since clarity emerged on US interest rates peaking after the release of the October 23 CPI. "Before that, we expected Nifty to be rangebound. Our optimism was further enhanced after India’s Q2 GDP data, after which we upgraded FY24 GDP to 7–7.5 per cent (the most optimistic on the street). Today’s state election outcome will lead to greater confidence in the continuity of the BJP government at the centre, which will drive markets higher. We are now quite positive on equities due to fundamental and liquidity strength; our FY24/25 Nifty EPS growth stands at 18 per cent / 18 per cent."

Sectors and stocks that the brokerage is positive on

The brokerage is positive on industrials (capital goods and defence), cement, metals/pipes, automobiles, and EMS, with a well-diversified position in other sectors (financials, pharma, discretionary, and staples). "While rural demand has been weak owing to inflationary pressures and a lack of incremental growth triggers, we expect this segment to fare better as the BJP is expected to incrementally focus more on welfare schemes in the run-up to the union elections. We expect a balanced approach between revenue and capital expenditure, retaining fiscal math," the brokerage added.

Top Picks

L&T, HAL, GET&D, UltraTech Cement, ACC, JSW Steel, Maruti, Tata Motors, Hero MotoCorp, ICICI Bank, Bajaj Finance, Axis Bank, PFC, Shriram Housing Finance, Muthoot Finance, Havells, Kaynes, PG Electroplast, Dr Reddy, Zydus Life, LTIMindtree, Coforge, Trent, Shoppers Stop, SBI Life, ICICI Lombard, Nippon Asset Management, Coromandel, Deepak Fertilizers, Gateway Distriparks, Mahindra Logistics, PNC Infra.

Motilal Oswal Financial Services

The brokerage expects market sentiment to strengthen further, and the prospect of a pre-election rally is quite strong now. It also notes that Nifty has given positive returns (9%–36%) six months into the announcement of general election results (November–May) on five previous occasions (1999–2019).

Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd

A new bull phase with clear support for growth awaits the market following a strong mandate for the ruling party at the centre in three out of five state poll results. A stable political environment could further boost investors' confidence and drive the markets higher, with the possibility of benchmark Nifty attaining 20,500–20,800 levels going ahead appearing bright. Optimistic global trends, including signs of foreign investors making a comeback in domestic markets, are major factors that will drive the upward movement going forward.

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