Post-Election Market Outlook: Analysis and Insights

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Political Scenario

Election Results 2024

The recent 2024 elections in India have resulted in a significant political shift. The BJP-led NDA secured 291 seats, overcoming the Opposition alliance, INDIA, which bagged 234 seats. Despite exit polls predicting a landslide victory for the ruling alliance, the BJP fell short of an outright majority, holding around 240 seats out of the 543-member house, thus depending heavily on its alliance partners. This marks the end of a decade of single-party dominance and the return of coalition governance at the Centre.

NDA Seats: 291

INDIA Alliance Seats: 234

Congress: 99 seats

Samajwadi Party (SP): 37 seats (up from 5 seats in 2019)

Given this coalition scenario, we expect the government to adopt more populist measures and face challenges in managing coalition partners, which may complicate the passage of structural reforms.

Key Triggers Post-Election Outcome:

Several key factors are poised to influence the market post-election:

Budget & Policy Continuity: Continuation of existing fiscal policies.

Government Focus Areas: Infrastructure, manufacturing, power, and defense sectors.

IMD Prediction: Above-normal monsoon, positively impacting the rural economy, FMCG, agricultural inputs, two-wheelers, and tractor companies.

Global Elections: Elections in major economies like the UK and USA.

Interest Rates: Expected to decline in the coming quarters, benefiting interest rate-sensitive companies.

Crude Oil Prices: Stability in the $65-90 per barrel range is favorable for the Indian economy.

Nifty Outlook:

The Nifty is expected to exhibit volatility, but dips should be viewed as buying opportunities. Our year-end target for the Nifty is set at 24,300.

Key Levels:

Immediate Support: 21,200 (confluence of result day panic low and 200-day EMA)

Key Support Area: 20,500-20,200 (unlikely to breach)

Year-End Target: 24,300

In the recent session, the Nifty experienced a sharp decline from the resistance level of 23,300-23,500, reaching a low at the important support level of around 21,200. This level is expected to act as immediate support. A breach below this could lead to a further decline towards 20,500-20,200, which we do not anticipate breaching from a medium-term perspective.

Sector Preferences:

Large Caps: Preferred due to valuation comfort.

Quality Mid-Caps: Accumulate in a staggered manner.

Sectors to Watch: IT, Pharma, and Auto sectors, driven by good monsoon, improved rural income, and budget focus.

Sector Analysis

IT Sector

The IT sector remains a significant economic driver for India, contributing 7.5% to the GDP in FY 2023, with expectations to reach 10% by 2025. The sector is poised to benefit from easing inflation and potential rate cuts in the US, leading to increased tech budgets and project revivals from large corporations.

GDP Contribution: 7.5% (2023), 10% (2025)

Digital Infrastructure: Enhanced through the Digital India program.

Nifty IT Target: 35,800 (61.8% retracement of the decline from 38,559 to 31,320)

Pharma Sector

India's pharmaceutical industry, known for its generic medicines and affordable vaccines, ranks third globally in volume production. It contributes approximately 1.72% to India's GDP and meets significant global demand for vaccines and generic drugs.

Global Rank: 3rd in volume, 14th in value

GDP Contribution: 1.72%

Nifty Pharma Target: 20,600 (based on the measuring implication of the last 3 months range)

Auto Sector

The auto sector is expected to see robust demand driven by rising middle-class income and a large youth population. The global EV market, valued at $250 billion in 2021, is projected to grow to $1,318 billion by 2028. India aims to lead in shared mobility and electric vehicles by 2030.

Global EV Market: $250 billion (2021) to $1,318 billion (2028)

Nifty Auto Target: 25,200 (based on historical trendline and 21-week EMA)

Nifty Outlook Summary

Metric

Value

Immediate Support

21,200

Key Support Area

20,500-20,200

Year-End Target

24,300

Sector Targets

Sector

Target Level

IT

35,800

Pharma

20,600

Auto

25,200

Conclusion

The post-election market landscape in India presents both challenges and opportunities. With a coalition government at the helm, political and economic stability will be crucial. However, sectors like IT, Pharma, and Auto are poised for growth, driven by favorable economic policies and global trends. Investors should focus on large-cap and quality mid-cap stocks, particularly in the mentioned sectors, to capitalize on the expected market movements.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

For All Disclaimers Click Here: https://bit.ly/3Tcsfuc

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