Nifty below 20,000 next? Stocks to consider as Modi's BJP likely to miss majority mark
Elections 2024: Emkay said the ruling NDA is set to return with a thinner majority than in 2019, belying exit poll forecasts of a vastly-improved majority.
- Jun 4, 2024,
- Updated Jun 4, 2024 3:46 PM IST
Lok Sabha election results 2024 threw up a negative surprise on Tuesday, with the BJP-led NDA seems to be returning to power albeit with a reduced majority. Emkay Global said the BJP is well short of majority as the brokerage sees Narendra Modi returning as the PM, but in changed circumstances.
The broking firm expects a stock market derating in the short term, as it feels the risk on India has gone up. PSUs and capital goods are the most vulnerable sectors and Emkay Global said it would stay away from the sectors for the time being. On the other hand, consumption should come back and and value retailers could make strong returns, it said. The brokerage is also constructive on healthcare.
"The broad direction of the economy is unlikely to change, though factor market reform and privatization are off the table. India is likely to now derate due to higher risk perception. Switch from PSUs and Capital Goods to FMCG and buy Indian equities if the Nifty falls below 20,000 (18 times FY25 PER)," it said.
Emkay Global said the ruling NDA is set to return with a thinner majority than in 2019, belying exit poll forecasts of a vastly-improved majority. The prevailing trends indicate that the NDA could end up with 290-300 seats, comfortably ahead of the 272 majority mark. "The bigger surprise is that the BJP, on its own, is set to miss the majority mark by a wide margin, with around 230-240 seats," it said.
Emkay said it is likely that Narendra Modi will return as PM for a third term. However, he will have to contend with changed circumstances. First, the BJP will be dependent on regional allies like Telugu Desam and Janata Dal (Secular), and make policy adjustments accordingly. Second, there will be greater demand to stimulate consumption in the economy from both, the BJP and allies.
There is an outlier possibility that the Opposition could form the government if some of the BJP's existing allies cross over. We think that would be unlikely.
"The broad pillars of India's economic momentum are unlikely to change. The focus on manufacturing will continue, especially given its importance in job creation. There may be a subtle shift back towards consumption stimulus, but we think it would not be material. State budget deficits may worsen, but we see little risk to the consolidation of the Central fiscal deficit," it said.
The capex cycle may also slow down as the government pivots (slightly) to revex spending, and corporates may get into a wait-and-watch mode for a few quarters. Finally, we think the unprecedented macro-financial stability will persist, with little risk of a collapse of the twin deficits or bank/corporate balance sheets.
"Factor market reforms like those related to land, agriculture, and labor are now off the table, in our view. Privatization and asset monetization are also at risk, which could drag government capex in the short term. Some political reforms like harmonizing elections (which need deep constitutional change) are now also unlikely," Emkay said.
It said one can Buy stocks with Nifty below 18 times PER. "The Nifty trades at 19.5 times PER, and we think that the correction isn't deep enough yet. At current levels, we are neutral and would stay invested but not add to positions. If the Nifty does correct another 10 per cent to below 20,000, we see the market being attractively valued at
Lok Sabha election results 2024 threw up a negative surprise on Tuesday, with the BJP-led NDA seems to be returning to power albeit with a reduced majority. Emkay Global said the BJP is well short of majority as the brokerage sees Narendra Modi returning as the PM, but in changed circumstances.
The broking firm expects a stock market derating in the short term, as it feels the risk on India has gone up. PSUs and capital goods are the most vulnerable sectors and Emkay Global said it would stay away from the sectors for the time being. On the other hand, consumption should come back and and value retailers could make strong returns, it said. The brokerage is also constructive on healthcare.
"The broad direction of the economy is unlikely to change, though factor market reform and privatization are off the table. India is likely to now derate due to higher risk perception. Switch from PSUs and Capital Goods to FMCG and buy Indian equities if the Nifty falls below 20,000 (18 times FY25 PER)," it said.
Emkay Global said the ruling NDA is set to return with a thinner majority than in 2019, belying exit poll forecasts of a vastly-improved majority. The prevailing trends indicate that the NDA could end up with 290-300 seats, comfortably ahead of the 272 majority mark. "The bigger surprise is that the BJP, on its own, is set to miss the majority mark by a wide margin, with around 230-240 seats," it said.
Emkay said it is likely that Narendra Modi will return as PM for a third term. However, he will have to contend with changed circumstances. First, the BJP will be dependent on regional allies like Telugu Desam and Janata Dal (Secular), and make policy adjustments accordingly. Second, there will be greater demand to stimulate consumption in the economy from both, the BJP and allies.
There is an outlier possibility that the Opposition could form the government if some of the BJP's existing allies cross over. We think that would be unlikely.
"The broad pillars of India's economic momentum are unlikely to change. The focus on manufacturing will continue, especially given its importance in job creation. There may be a subtle shift back towards consumption stimulus, but we think it would not be material. State budget deficits may worsen, but we see little risk to the consolidation of the Central fiscal deficit," it said.
The capex cycle may also slow down as the government pivots (slightly) to revex spending, and corporates may get into a wait-and-watch mode for a few quarters. Finally, we think the unprecedented macro-financial stability will persist, with little risk of a collapse of the twin deficits or bank/corporate balance sheets.
"Factor market reforms like those related to land, agriculture, and labor are now off the table, in our view. Privatization and asset monetization are also at risk, which could drag government capex in the short term. Some political reforms like harmonizing elections (which need deep constitutional change) are now also unlikely," Emkay said.
It said one can Buy stocks with Nifty below 18 times PER. "The Nifty trades at 19.5 times PER, and we think that the correction isn't deep enough yet. At current levels, we are neutral and would stay invested but not add to positions. If the Nifty does correct another 10 per cent to below 20,000, we see the market being attractively valued at