General Elections 2024: How can stock market investors make most out of the ongoing Lok Sabha polls?
As election seasons roll around, investors often seek strategies to capitalise on potential opportunities while mitigating risks. The alteration or continuation of policies following elections has the potential to catalyse the next wave of investment growth in the economy, offering potential benefits to the astute investors.
Over the past four national elections, market performance has mirrored anticipated results, with notable outperformance during election result periods. The convergence of conducive reforms has been a key driver, underscoring the potential for positive returns regardless of the political landscape.
Since 2014, India has witnessed political stability under the BJP’s majority rule, and now amid the national elections, political continuity remains the anticipated trajectory.
The Indian economy rides on a long-term secular megatrend, fuelled by distinct drivers propelling it towards a multi-decadal growth outlook. A resurgence in the investment cycle signals a robust GDP growth trajectory of 6-7% over the next five years. With active participation across housing, corporate expenditure, and government spending sectors, India appears resilient against global economic headwinds.
Investment-to-GDP ratios are on an upward trajectory after a prolonged decline, signalling the potential for a growth cycle driven by capital expenditure. This trend paves the way for enhanced productivity growth, promising opportunities across various sectors.
Looking ahead to FY25, several thematic investment avenues emerge:
Infrastructure: With government capital expenditure slated to increase by 11% compared to FY24 as mentioned in the recent budget, infrastructure companies stand to benefit, especially post-election private capex injections.
Realty: Robust housing demand coupled with strong market performance suggests sustained growth for real estate players. Favourable market conditions and lower interest rates are expected to drive industry expansion. We expect realty to be one of the main drivers of the Indian economy going forward.
Renewable Energy: India’s focus on increasing renewable energy capacity presents significant investment potential, particularly in solar energy, with plans to expand capacity threefold by 2030.
Discretionary Consumption: With a burgeoning upper-middle-income and high-income demographic, companies catering to discretionary consumption are poised for substantial growth over the next five years.
In past general elections, equity markets gradually priced in anticipated outcomes, highlighting the preference for stable governance with a developmental agenda. Amidst this backdrop, a constructive outlook on domestic macroeconomics suggests that the capex-driven expansion will likely sustain the growth cycle.
As investors navigate the intricacies of electoral trends, strategic positioning in line with evolving market dynamics remains paramount. With a nuanced understanding of policy shifts and sectoral opportunities, investors can optimise their portfolios for long-term success amidst electoral cycles.
