On Monday, both headline indices—Nifty 50 and Sensex—hit record highs during the day at 23,411.90 and 77,079.04 points, respectively.
“The record market highs indicate the markets’ confidence in the ongoing economic reforms and policy stability,” said Soumya Rajan, founder and CEO, Waterfield Advisors.
Reduced majority
Even with the BJP’s reduced majority in the Lok Sabha election, investor confidence swiftly bounced back, buoyed by key allies reaffirming their support for the party.
“It is also evident from the fact that market is back to pre-exit poll levels. In fact post-NDA government formation on 9 June, Nifty touched new high 23,411, rallying 10% from the low of 21,300 hit on 4 June,” highlighted Ajay Menon, MD & CEO, Broking & Distribution, Motilal Oswal Financial Services. With the elections now over, he sees the focus reverting to bottom-up stock picking.
With the market now refocusing on fundamentals over sentiment, Gaurav Dua, senior vice president & head – Capital Market Strategy, Sharekhan by BNP Paribas, said, “We see the upward bias to continue with sector rotation in favour of consumer staples and rural demand driven stocks.” He noted that smart money is flowing into consumer stocks and some of the beaten down IT services companies.
Meanwhile, Alok Agarwal, head of Quant and fund manager at Alchemy Capital Management, expects the dominant trend to continue, led by domestic cyclicals such as defence, power, real estate, auto, and industrials.
Though, investors took some money off the table on Monday. With that, Nifty 50 settled at 23,259.20 points, down 0.1%, and Sensex closed 0.3% lower at 76,490.08 points. Also, heavyweight Reliance Industries retreating from its day’s high, along with losses in shares of index majors like Infosys, HDFC Bank, Mahindra & Mahindra, and TCS resulted in the headline indices closing in the red.
Volatility may persist
Andrew Holland, CEO of Avendus Capital Alternate Strategies, noted that volatility may persist until the Budget announcement, with potential changes to capital gains tax being a key concern. “Till then the market is baking in a ‘business as usual’ stance,” Holland said.
That said, “The focus of the Indian media is now on what cabinet seats these two parties will demand to join the coalition, and what policies they will lobby for,” Christopher Wood of Jefferies had in his weekly newsletter Greed & Fear on 6 June.
Apart from key cabinet portfolios and the upcoming Budget, Menon of Motilal Oswal Financial Services noted that monsoon progress and interest rate movements will likely dominate investors’ minds in the near future.
Besides, despite the risk of renewed share price declines, there is a bright spot from a funds flow perspective, pointed out Wood. “That is that foreign investors will view any significant correction as an opportunity to add since a combination of India’s outperformance in recent quarters and high valuations, most particularly in the mid-cap space, has meant that most dedicated emerging market investors are no longer overweight the market.”
All said, there is still some bit of nervousness because coalition governments are inherently messy, while Prime Minister Narendra Modi’s first two terms were marked by a single-minded policy focus. So, doubts linger about Modi’s effectiveness in a coalition, given his nearly 13 years of single-party governance in Gujarat.
Growth focus to continue
Looking at the broader picture, the emphasis on capex and investment-driven growth are likely to persist, alongside efforts to revive consumption at the grassroot level, potential tax relief, and GST structure rationalization. Thrust on renewable energy, power investments, and PLI are also expected to continue.
“Some key focus areas/sectors investors should look forward to are automotive and auto components (EV innovations & upgraded infra), financial services, infrastructure (construction, real estate, and engineering), renewable energy and sustainability, and export-oriented sectors (output-linked incentive plans),” said Rajan of Waterfield Advisors.
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Published: 10 Jun 2024, 07:59 PM IST
