General Elections 2024: Market volatility expected around poll results, says study
Analysing four election cycles spanning over 20 years, the study pointed out that during each of these periods, investors have consistently achieved above-average returns, whether preceding or following the announcement of election results.
Moreover, the data indicates that even within a minimum investment timeframe of one year, investors have experienced significant gains. Therefore, it recommends that investors maintain their positions in the market, regardless of volatility, and remain unfazed by election-related news or rumors.
The study informed that in 2019, the Nifty50 posted 10.7 percent returns in 6 months before the elections and just 2.2 percent returns in the 6 months after the elections. The same trend has been in 2014, 2009 and 2004 as well. Nifty returns before the elections have been higher than that post elections. In 2014 as well, Nifty rose 18.9 percent in 6 months before the elections and 16.4 percent post elections.
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Upcoming elections and the PSU link
According to the report, Public Sector Undertakings (PSUs) have demonstrated strong performance recently, making PSU stocks worthy of attention due to their increased profitability. In 2023, the Nifty PSE index surged by 77 percent, outpacing the Nifty 50’s return of 20 percent. Even in 2024, the PSE index has delivered a return of 21 percent, compared to the Nifty 50’s return of 3 percent. This performance suggests the potential for further gains, particularly given the low valuations, with the Nifty PSE index still trading at a PE ratio of 10.
Additionally, public sector indices including the Nifty PSE, Nifty CPSE, and Nifty PSU Bank have all surpassed major Indian indices over the past year. This trend indicates a growing belief in public sector undertakings within the country, which is contributing to the overall strength of the market.
“Investors are optimistic about the Indian government’s development efforts. Public sector companies thrived, buoyed by increased government spending in railways and defense, and the ‘Make in India’ initiative. This led to a substantial increase in market capitalization, nearing ₹20-lakh crore. Expectations of the current administration’s victory in the 2024 general elections and robust order books also contributed to the PSE stock surge, indicating strong macroeconomic fundamentals and high demand,” said Shailesh Saraf, smallcase manager and Founder, Value Stocks.
The study also lists 3 sectors likely to benefit from the upcoming elections
Railways: As per the study, India is poised to revolutionise its railway infrastructure development in the coming years with an ambitious agenda. The plan includes several key initiatives such as the acquisition of 8 High-Speed Bullet Trains, the modernisation of over 1300 railway stations, and substantial investments in 400 Vande Bharat trains and 3000 new passenger trains over the next 5 years. Furthermore, significant progress is expected in the development of the dedicated freight corridor of India, which aims to handle 45 percent of the country’s freight. These endeavors collectively represent a significant sector CAPEX opportunity of ₹50 lakh crore in railways, driven by a vast Total Addressable Market, it noted.
Defence: In 2023, India’s defence sector showcased robust growth with a substantial expenditure of $81 billion, positioning the country as the fourth-largest defence spender globally. The sector also witnessed remarkable success in defence exports, boasting a compounded annual growth rate (CAGR) of 20 percent and reaching 84 countries worldwide, stated the report. Expenditures were diverse, encompassing the acquisition of submarines, torpedoes, aircraft carriers, fighter jets, and missiles, as well as the establishment of two defence corridors. Additionally, the procurement of 150 defence and radar systems, with 70 percent being domestically sourced, further bolstered the sector’s momentum. Notably, several Public Sector Undertaking (PSU) stocks in this domain recorded exceptional performance, yielding returns exceeding 100 percent, driven by substantial order books secured from the government, it added.
Public Sector Banks and Financial Institutions: According to the study, the robust earnings performance of state-owned banks in India has been underpinned by sustained credit growth, notable enhancements in asset quality, and stable to higher margins, consequently driving up share prices. With the majority of banks expressing confidence in the continuation of double-digit credit growth throughout 2024, supported by the resilience of the domestic economy and increasing demand from rural areas, the sector’s consistent performance is anticipated to persist. Factors contributing to this outlook include the quality of earnings, positive growth prospects, and a broader re-evaluation of Public Sector Undertakings (PSU) entities. Additionally, the profitability of state-run banks has experienced significant growth, with PSU Banks in India recording a year-on-year profit increase of 29 percent and a quarter-on-quarter growth of 11 percent, underscoring the strength of their performance, stated the report.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 15 Mar 2024, 12:59 PM IST
