Election rallies offer limited-period opportunities in narrative stocks: Kotak Equities
Kotak has identified 50 stocks in the BSE 500 index which have given returns between 92% and 21% in the current election cycle over the last three months. The highest returns have been delivered by Oracle Financial Services Software (92%), followed by EIH (77%) and Oil India (73%) while RITES (30%), Hitachi Energy (26%), and PNC Infratech (21%) at the bottom of the pyramid.
Election rallies offer limited-period opportunities in narrative stocks and Top-performing lost value over time after a pre-election rally in 2014 and 2019, Kotak Institutional Equities said in a note. Most of the top-performing stocks in the previous election rallies were cyclical and narrative stocks.The note said that only a handful of the outperformers of 2014 lived up to expectations, while most outperformers of the 2019 pre-election rally saw a severe sell-off after the elections. Only defensives outperformed in this period.
Kotak has identified 50 stocks in the BSE 500 index which have given returns between 92% and 21% in the current election cycle over the last three months. The highest returns have been delivered by (92%), followed by (77%) and (73%) while (30%), (26%), and (21%) at the bottom of the pyramid.
Opinion polls show the BJP/NDA as overwhelming favorites to win the 2024 elections, with their vote share projected at 42-52% versus the 45% vote share in the 2019 elections, Kotak said while noting the projected to win an average 366 seats in 2024 versus 354 seats in 2019, suggesting a higher conversion of votes to seats.
Current valuations in Indian equities remain much higher compared to pre-2014 and pre-2019 election periods riding on "extremely high confidence" about NDA victory with a large majority and a forceful implementation of post-election policies, Kotak Institutional Equities said in a note.
Indian equity markets have delivered strong returns in the run-up to the past two national elections, with the Nifty 50 index delivering an 11% return in the two months to the 2014 elections and a 2% return in the two months to the 2019 elections. However, different sets of sectors and stocks had performed in the 2014 and 2019 pre-election periods, the Kotak note said.
Kotak also noted that net FPI inflows in the secondary market had generally peaked around March in the past two elections, and the same phenomenon was seen in March 2024. Domestic mutual funds used to be neutral in their positioning in the past elections, but they were heavy buyers in March 2024.
"However, this may be more linked to flows into domestic equity mutual funds, which are at record-high levels currently," the Kotak note said.
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Source: Stocks-Markets-Economic Times
