Prime Minister Narendra Modi-led National Democratic Alliance is most likely to return to power at the Centre in the Lok Sabha elections scheduled to be held in May 2024, prominent brokerage house Jefferies said in a report on Thursday. The report, dated August 30, notes that Modi continues to be the most popular political leader India has ever seen and that recent or potential setbacks in state elections may not change the outcome of the general elections next year.

“Current PM Mr. Modi continues to be one of the most popular political leaders India has seen thanks to a combination of various factors, including solid implementation of social schemes, jobs oriented growth focus, strong communication and appeal to emotional factors etc. For equity investors, his capex driven growth policies matter the most.

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“Voters vote differently at the state and national elections and, hence, recent/potential setbacks at the state elections does not necessarily imply a setback at the national elections. Some important allies of the party have left since 2019, but the party has been able to forge a few new relationships as well which should be helpful,” it said.

The report further states that the Opposition’s I.N.D.I.A alliance of 26 parties may fail to make any significant dent in the NDA’s tally, even assuming 100 per cent vote transfer amongst these parties’ basis the 2019 results.

“In a hypothetical exercise, assuming only 1 candidate from all these parties in any constituency and assuming 100% vote transfer amongst these parties’ basis 2019 outcome, the alliance could win 20 more out of 543 national seats, taking total to 180. We also note that 6 key parties (YSRCP, TDP, BJD, BSP, JDS & ADMK) are not a part of this coalition with cumulative 49 seats (2019 election) and can possibly tilt towards BJP’s coalition (NDA) if need be,” the report states.

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Jefferies further notes that the 2024 elections will see 25.5 crore new voters who were not eligible to vote in the pre-Modi era. The report states that while their tendencies remain untested, certain emotive issues like the cross-border conflicts, Ram Temple issues etc. can have an impact on the election outcome.

The report also notes that the BJP managed to win the Lok Sabha elections in 2019 “in style” despite losing three key elections in Madhya Pradesh, Rajasthan and Chhattisgarh in December 2018. “We believe that political continuity is the most likely outcome, though the margin of victory could be narrower.”

Jefferies says it remains bullish on the Indian market and notes how it overperformed the MSCI AxJ during the election results period by 5-9 percentage points. “We note that even in the 2004 type of scenario of an election upset, the economy & the stock market were both back on track recouping the initial losses in 6 months’ time,” the report states.

“We therefore OWT (overweight) on capex recovery plays including banks, industrial and property. Our top picks are Axis Bank, ICICI Bank, SBI, L&T, Ultratech and property and select industrial mid-caps including Thermax, KEI, Siemens & Kajaria. We also tactically OWT staples running up to the elections in the expectations of favourable rural policies,” it adds.