Exit polls predict Modi 3.0: Sharekhan lists top stocks for short and long term including ICICI Bank, SBI; check list

With most exit polls predicting a strong win for the BJP-led NDA in the 2024 Lok Sabha elections, the Indian stock market benchmarks, Sensex and Nifty 50, surged nearly 4 percent each to new record highs on Monday, June 3. The prospects of political stability and policy continuity fueled the rally.

The benchmark indices surged over 3 percent in intra-day deals following the exit polls. The BSE Sensex skyrocketed as much as 2,777.58 points to its record high of 76,738.89 while the Nifty rallied 808 points to its new peak of 23,338.70.

Exit polls on June 1 indicated the NDA could secure 350-370 seats. While actual results may vary, experts believe the formation of a non-NDA government is highly unlikely.

Read here: Exit Polls 2024: Modi-led NDA poised for third term with 350-370 seats; what should investors do next?

"The incumbent government’s reforms have already started fructifying, as reflected in high GDP growth along with fiscal discipline and efficient capital allocation versus populist measures. In the event of the BJP-led government in power again, we expect a major reform rush encompassing areas such as Ease of Doing Business, measures to drive higher flows into government bonds, a simplified tax code, widening the GST ambit, etc. We expect domestic cyclical sectors such as infrastructure, industrials, defence, capital goods, and automobiles, to continue to be the major beneficiaries. On the flip side, the worst-possible scenario could be the BJP not achieving a single party majority, wherein sentiments could take a beating on political stability and some knee-jerk reaction could be seen," said domestic brokerage house Sharekhan in a post-exit polls report.

Sharekhan believes that the market volatility would settle down now after the exit poll outcome and the focus would shift towards the most likely outcome of the BJP emerging as the single-largest party with a stable government and policy continuity along with new reforms rush.

Read here: General Elections 2024: Will FPI trend shift in June? Experts weigh in as exit polls predict NDA win

It remains highly positive on India’s structural growth story and expects equity as an asset class to outperform significantly.

As part of the portfolio strategy, the brokerage continues to stick to its multi-year investment themes of the 3Cs - Capex, Capital, and Consumption. For 2024, Sharekhan has maintained its stance of increasing focus on largecaps and cutting exposure to small and microcaps; it also advises investors to start accumulating select IT and specialty chemicals stocks.

However, in the near term, based on the current unanimous possible outcome of a BJP-led government, it expects domestic cyclical sectors such as infrastructure, industrials, defence, capital goods an automobiles, to continue to be the major beneficiaries.

Read here: Infra, defence, railways PSU Banks, among key sectors in focus if BJP wins

"In the short term, after the election outcome, for next two weeks, we expect the small & mid-cap space could outperform large caps, with domestic cyclical sectors and PSUs in focus. After that, in the run-up to the Union Budget 2024-25 (to be presented in the first week of July 2024), there might a possibility of profit booking with anxiety around tax overhaul, while lagging sectors such as Pharma, FMCG and IT would outperform," forecasted the brokerage.

The brokerage has listed stock picks for the short as well as long term (3-5 years).

In its short-term post-election list, it prefers 34 stocks including ICICI Bank, IndusInd Bank, M&M, Hero Moto, Coal India, HAL, BRL, UltraTech Cement, SBI, DLF, BHEL, NTPC, and PFC, among others.

Meanwhile, in its structural picks (long-term for 2-3 years), it likes stocks including TVS Motor, L&T, Thermax, Bharat Forge, Trent, Indian Hotels, Sunteck Realty, BPCL, HPCL, etc.

Past reforms push has started fructifying

The brokerage noted that over the past 10 years, the BJP-led government under Prime Minister Narendra Modi has introduced numerous policy reforms to elevate the Indian economy. Key initiatives include the introduction of RERA and the Insolvency and Bankruptcy Code in 2016, promoting transparency in the real estate sector and streamlining insolvency processes. The adoption of the Unified Payments Interface (UPI) has been transformative, with over 62 percent of digital transactions now occurring through UPI, it said.

The government has also boosted domestic manufacturing through PLI schemes across various sectors and enhanced multi-modal infrastructure connectivity with the PM Gati Shakti program, it further stated. Economic reforms, such as GST implementation and corporate tax cuts, have improved corporate profitability and economic transparency. These structural reforms have contributed to high GDP growth, fiscal discipline, and efficient capital allocation, moving away from populist measures, added Sharekhan.

Read here: Exit Poll 2024: How to trade keeping Lok Sabha Election results in mind?

Modi 3.0: New reform rush

In Modi's likely third term, the brokerage expects a major structural reform rush, though the magnitude of the same would depend on the number of seats won.

"In setting a roadmap for Viksit Bharat 2047, we anticipate major policy reforms for Ease of Doing Business to attract FDI investments and sovereign rating upgrades, driving higher flows into government bonds given their inclusion in global bond indices and other measures pertaining to judicial reform, Uniform Civil Code, land bill, a simplified tax code and bringing more products into the GST ambit. The reforms would most likely encompass various aspects of development, including economic growth, social progress, environmental sustainability, and good governance," expects Sharekhan.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.