Investment ideas for 2019 elections: Here’s why fund manager Samir Arora is not picking stock bets yet

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Published: June 1, 2018 11:31:33 AM

We take a look at what Helios Capital's Samir Arora has to say about planning a trading strategy ahead of 2019 general elections.

Samir Arora of Helios Capital says that it’s too early to start planning a trading strategy ahead of 2019 polls.

Even as the run-up to the 2019 general election begins, and investors may be on the lookout for top stock bets ahead of the polls, Samir Arora of Helios Capital says that it’s too early to start planning a trading strategy. According to a recent Morgan Stanley report, Sensex could hit 41,500 in case of an absolute majority for any one of the national parties, be it Modi’s BJP or the Congress Party. According to the firm’s estimates, if any of the major party wins around 260+ seats like the BJP-led NDA in 2014, it would imply a bull case scenario for Sensex, where the 30-share index could top 41,500. However, in an interview to CNBC TV-18, Samir Arora, Helios Capital advised that it is too early to start planning trading strategy for general election outcome.  

Sharing various different investment strategies, Morgan Stanley said that in case of a thumping victory by either parties, investors should buy domestic cyclical stocks. In a bull case scenario, wherein a sweeping victory by either party plays out, investors must be over-weight consumer discretionary stocks, financials and industrials, the firm said. Further, the investors must underweight  consumer staples, energy, healthcare and IT stocks.

While the outlook appears to be robust in case either party achieves majority, the 30-share index could feel increased pressure in case any single party fails to attain majority. “The world’s biggest democratic elections (~930 million voters) are 12 months away and the market is likely to start pricing in an election outcome in the coming months. The biggest investor concern: a weak coalition government, one loath to quick administrative decisions, inducing political uncertainty,” Morgan Stanley said in its report.

According to the global firm, in case there is a weak coalition, with participation of a lead party only in a supporting role such as in 1996, the Sensex could tank to 25,000 levels. Sharing its forecast for other scenarios, Morgan Stanley said that in case of a weak majority wherein the lead party wins around 220 seats, like the UPA in 2009, the Sensex could see limited upsurge to 35,700.

Summing up, the firm observed that in India, elections present tail risks, especially if the outcome counters what is priced in. “The market appears unsure of whether India will re-elect a majority government in 2019. If this uncertainty rises, we think stocks will struggle to rise in coming months,” Morgan Stanley noted.

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