New Delhi: Lok Sabha election was one of the most awaited events for this year. After one and half months of voting across the country, results are finally out and Prime Minister Narendra Modi’s BJP is back with a thumping win, the first party to secure back-to-back majority since 1984. Many analysts expect midcap and smallcap stocks to outperform from here on, due to improvement in risk-on sentiment and expectations of an acceleration in economic growth.
Despite the Sensex and Nifty hitting new highs, the mid-cap and small-cap indices remain way off all-time highs.
However, many analysts say that the new government has to tough task on hand given a multitude of problems like NBFC and real estate crisis, banking NPA problem, slowdown in demand and weak capex cycle.
“Over the next few days the markets will focus on cabinet formation and policy pronouncements in terms of thrust area,” said Dhiraj Relli, MD and CEO at HDFC Securities.
As PM Modi returns to power with a even bigger majority than in 2014, here are some top stock picks from some brokerages for the medium to long-term.
Motilal Oswal Financial Services:
The brokerage firm says the formation of a stable government may augur well for foreign institutional flows and domestic mutual fund inflows which have seen consistent scale-up in systematic investment plan (SIP)-based investments.
“In Modi 2.0 era, we expect the economy and markets to have a relatively smooth trajectory, sans any disruptive and transformational macro reforms. From the near-term perspective, the immediate focus of the government would be to revive the rural consumption engine, NBFC/debt markets in coordination with the RBI, and drive fiscal spending to revive industrial growth,” the brokerage said in a report.
Large-cap: ICICI Bank, State Bank of India (SBI), Maruti Suzuki India, UltraTech, Larsen and Toubro, Titan, Bharti Airtel, Coal India, Infosys and HDFC Life.
Mid-cap: Federal Bank, LIC Housing Finance, Indian Hotels, Siemens, Aditya Birla Fashion and Retail, Crompton Consumer, Ashoka Buildcon, Jindal Steel Power, Godrej Agrovet
Kotak Institutional Equities:
“We see two investment-related reforms as being critical to increase India’s investment rate—(1) reforms in factors of production including labour and land and (2) review of the role of the government in business (privatization of PSUs) and changes to extant ownership and pricing policies to encourage greater FDI and private investment in the critical infrastructure sector,” said the brokerage.
Large-cap: Tata Steel, HDFC, ONGC, M&M, SBI, L&T, ICICI Bank, Bajaj-Finserv, Infosys, Tech Mahindra, Reliance Industries.
Mid-cap: The brokerage remains positive on mid-cap stocks in automobiles and components, banks, capital goods, diversified financials and gas utilities. Some of them are CESC, Escorts, Equitas Holdings, Federal Bank, Mahindra and Mahindra Finance, Max Financial Services, Petronet LNG, Tata Power and Shriram Transport.
“We believe that new government has a tough task on hand given a multitude of problems like NBFC and real estate crisis, NPA problem, slowdown in demand and weak capex cycle. We advise focus on large-cap and fundamentally strong names,” the brokerage said.
Large-cap: HDFC Bank, Hindustan Unilever, ICICI Bank, Maruti Suzuki, L&T, Titan Company, UPL and Petronet LNG.
Mid-cap: Ashok Leyland, Shriram Transport, IDFC First Bank, L&T Tech, Jubilant Foodworks, P.I.Industries, Crompton Greaves.
Small-caps: Kalpataru Power Transmission, VIP Industries and NOCIL.
“We believe elections-related exuberance could propel markets in the near term and pose an upside risk to our CY19E Nifty target of 12,000. However, the current level of corporate fundamentals, geopolitical developments, such as trade wars and US-Iran conflict, and the progress of Monsoon will weigh on the markets,” said the brokerage.
Elara Capital also expects that as an asset class, the midcaps will outperform large-caps this time.
Large-cap: Britannia, HDFC Bank, Hindustan Unilever, Maruti Suzuki, Reliance Industries, TCS, UltraTech Cement
Mid-cap: Ashok Leyland, Crompton Consumer, Exide, Gujarat State Petronet, KEC International, MRF, Nestle, PNC Infratech, Shree Cement, Supreme Industries.
Disclaimer: The views expressed by investment experts are their own. Please check with certified experts before taking any investment decisions.