Election results volatility braced bravely, but political risk still high
Bharatiya Janata Party or BJP, the largest party falling short of majority in 2024 general elections came as a surprise to the leadership's plan and media consensus. However, the support of two pro-reform oriented regional parties (TDP, JDU), with limited conditions, helped ease the initial disappointment. Most ministry allocations have been retained, except for mining, heavy industry and aviation ministries. Any delay/deviation in local state development priorities as demanded by the regional parties, and the upcoming three-state election performance in next six months can increase the perceived political risk & volatility.
Government policy may shift towards inclusive growth
Immediately after assuming office, the central government was on its toes to address the voting gaps it saw in farm-heavy states and rural markets. The release of farmer installment of Rs2,000 and financial assistance to build 30m new houses in rural and urban areas indicate policy shift towards improving the spending in rural markets. The macroeconomic situation remains strong, with 4Q GDP above expectations and the RBI raising its growth estimate for FY25F. Inflation remains benign, and the rainfall likely to be above the average should aid in sustaining macroeconomic tailwinds. The Union budget, scheduled towards end-Jul 2024, will be keenly watched for how the government uses the fiscal headroom provided by the huge RBI dividend. We have listed the policy priority outlook in Figure 5.
Nifty EPS growth outlook retained at mid-teen CAGR
The Mar 2024 quarter results were marginally above expectations. FY25F-26F Bloomberg consensus Nifty-50 PAT CAGR of 12% is expected to be driven by telecom, consumer staple, materials, consumer discretionary and capital goods sectors.
Maintain our Overweight stance with Nifty target raised to 25,683
With the major political event being well braced by large liquidity benefits, we raise our bull- case probability from 20% to 25%, factoring in favourable macroeconomic tailwinds, leading to an upgrade in our blended Nifty-50 target to 25,683 (from 24,084 earlier). The preference for large-caps remains. We have added defensive stocks to our high-conviction ideas list and removed policy-risk stocks in the defence sector. |
