23 May 2019 saw NDA, comprising BJP and its allies forming the government for the second term. Let’s look at the economy and the sectors that are likely to progress.

Bullish Sentiment Prevails 

The Sensex reached a13 year all-time high of 40,000 points. It breached the 10,000 mark in 2006 and after 13 years has crossed the 40,000 level.

The Nifty was not to be left behind and touched a peak of 12,000 points. The bulls have taken over and there is optimism abounding in the markets.

Commenting on the positive development, B Gopkumar, ED and CEO, Reliance Securities said-“Markets were looking for stability, continuity and strong leadership rather than a fractured mandate – this has led to the new high.

We believe India allocation from global funds will increase and more ETF flows are likely over the short term that could drive the markets even higher.”

Financial stocks have predominantly benefited from the rally. This is in expected lines. Benign interest rate regime, recapitalization of public sector banks would ensure higher credit offtake. Banks with a healthy deposit base and NBFCs with strong internal controls and lending norms are expected to outperform their peers due to gaining market share.

Market experts believe that further formalization of the sector with the emphasis on digital India can create ample space for private banks in retail lending.

Banks that have a well spread network and have improved bottom line with lower provisioning requirements, could benefit, due to credit and loans picking up.

The following are some of the companies that have registered massive gains from the rally, as per ACE Equity.

Stocks that Gained

Company Name Close (Rs) Change (%)*
Bajaj Finance 3447.7 7575.1
IndusInd Bank 1517.55 2832.5
Kotak Mahindra Bank 1495.5 2327.3
Asian Paints 1366.75 1832.3
HDFC Bank 2405.1 1515
Axis Bank 779.3 1064
Tata Consultancy Services 2082.75 892
Maruti Suzuki India 6904.1 837.7
Hindustan Unilever 1766.15 808.7
Yes Bank 137.7 771.5
HDFC 2140.6 700
Reliance Industries 1340.7 644.7
HCL Technologies 1059.2 606.5
Larsen & Toubro 1460.55 483.4
ITC 299.55 473.3
Sun Pharmaceutical Industries 420.65 422.8
Mahindra & Mahindra 640.95 355.5
State Bank Of India 340.85 317.8
Infosys 709.2 298.9
ICICI Bank 405.5 267.3
Vedanta 166.45 218.4
Hero MotoCorp 2698.8 210
Bharti Airtel 335.05 97.5
Tata Steel 473.7 38.4
Oil & Natural Gas Corporation 176.55 33.5
NTPC 129.6 31.5
Tata Motors 179.45 27.5
Source: ACE Equity
Change between Feb 6, 2006 and May 2019; Price on BSE on May 22, 2019

The Agro Sector

agricultural-sector

The government is expected to launch several schemes to improve the farm productivity levels and provide monetary incentives like pension payment to the farmers.

Recognizing the agriculture thrust of the Government, one can expect agro-related stocks like Rashtriya Chemical and Fertilizers, Tata Chemicals, M&M, Jain Irrigation etc to perform well and see increased investor interest.

 Infrastructural Development 

As was reiterated in the manifesto, if implemented, the growth of the infrastructural sector could be an economic boost.  However,  the infra stocks, in particular, are suffering from slow execution levels and stressed funding.

Experts believe that cement sector could benefit from the priority

While, one can expect more or less a status quo with enhanced focus on the welfare and social oriented sectors like farming, low cost housing, infrastructure, the full Budget might not include any new announcements, apart from what was covered in the Interim Budget.

Expected Reforms 

Citizens are expecting sterner action against black money, illegal property holders and attempt to plug leakages in GST collection along with trying to improve direct tax collections, in the economic reforms front.

Hopefully, India can jump up a  few notches in the ease of doing business if reforms like Start Up India, Mudra Yojana, Digital India, GST etc begins to yield benefits and show results by way of improvement in macroeconomic parameters as well as sectoral performance.

India on Its Way to Become World’s Second Largest Economy?

Experts say that in the next 5 years, India may emerge in the top 3 economies globally with GDP expected to fall in the range of 7-7.4% as per economists’ estimates.

To achieve economic growth of such a scale that is inclusive and allows participation by the vast population of over 125 crore, invariably requires bold steps on the policy front.

However, all of these are assumptions and one will just have to wait and watch to see what new turn the economy takes, depending on the macro and micro climate.

Middle Class Takes Centerstage?

The middle class which is made up of aspirational Indians is one of the most important sections of our society, both in terms of demographics as well as spending power, who fuel demand and drive the economy.

Budget 2019: Boon for the Middle Income Group?

The higher purchasing power, in turn, can boost consumption-led growth. This along with a good monsoon, would benefit sectors like FMCG and automobiles.

Hike in Defence Spending

Higher Budget allocation to defence expenditure by way of acquisition of artillery, better equipment, warfare guns and tanks, fighter aircrafts and technological investments are proposed.

This higher spending might cause increased fiscal deficit. However, if India aspires to have a permanent seat at the UNSC, its, vital to have a strong military base.

 

Conclusion

It must be remembered that reforms strengthen India structurally in the medium to long term.

However, on the flip side, there could be slight earnings hit and slowing growth in the next few quarters to adjust to the magnitude of reforms in the short term .

This correction period will have to be borne in order to have an India with sound fundamentals that can withstand global economic events like fluctuations in oil price, currency volatility, trade disputes between US and China, BREXIT etc

Let’s remember knows what will happen next in the market, but by planning your investment and being sharp about choosing sectors can take you a long way in your financial journey!

Disclaimer: The views expressed in this post are that of the author and not those of Groww