it is higheró is likely to be a lot more halting, and require greater patience and holding periods,Ē it says, adding that across asset classes, equities still have the most scope for further upside, although, even there, a period of consolidation is probably on the cards, before any cyclical upswings propels the market higher.
Geoff Lewis, executive director, Global Market Strategist, JPMorgan Funds, says historically, Indiaís elections and change of government have only had a limited impact on the stock market. ďBut if the NDA-coalition and (Narendra) Modi hold onto their key policy objectives as set out in the BJP manifesto, then the markets should start anticipating a cyclical improvement in the economy beginning early in 2015 that, in turn, will feed through the company profits, margins and earnings, holding out the prospect of significant upgrades to 2015 Sensex earnings. And beyond a near-term cyclical rebound, we also envisage a brighter medium-term outlook for the Indian economy that could start to become visible by 2016,Ē says Geoff Lewis in a recent note.
Given Prime Ministerís Modi superior managerial, coordination and execution abilities as displayed by him in Gujarat, where he was the chief minister since 2001, companies in the power/coal space, downstream oil marketing companies and selective asset owners in the infrastructure space will benefit. ďThe valuations of these sectors are still comparatively supportive and that opportunity for growth is very large and realisable in a positive policy environment,Ē says a note from Nomura.
Analysts expect infrastructure projects to be announced, including several mega projects. The BJPís support for the business sector could also see a number of market-oriented micro measures. Good news for investment activity from the government should put an end to policy uncertainty. This, in turn, will lead to rising business confidence and more private sector capex initiatives.
Analysts say once a bull market rally begins, defensives, which have had a price-earnings ratio (PER) expansion earlier due to underperformance of the cyclicals, would see an immediate contraction in PER. Sectors like IT, pharma and fast-moving consumer goods that have benefited earlier may underperform. And sectors, which have been bearing the brunt of the slowdown like capital goods, banking and cement, will see significant re-rating in the near term, both in valuations as well as earnings.
Sector-wise, Nomura reiterates preference for rate cyclicals, which would benefit from higher growth expectations. Others are betting on banking stocks as any pick-up in the economy