Citi Research Provides Insight into Post-Election Market Sentiment via Investing.com
The recent election results in India, contrary to exit poll expectations, have stimulated market dynamics, sparking a surge in volatility and a potential shift in risk perception. The following summarizes Citi Research’s analysis and initial reflections on its impact.
1. Valuation Volatility: Valuation multiples may fluctuate in the short term due to differences between exit poll results and actual results. Indian markets, which are currently trading at a significant premium to historical levels and emerging market indices, may adjust as risk perception evolves.
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2. Strategic disinvestment: The market outlook on strategic disinvestment is expected to become more cautious until future budgets become more clear. Certain sell-off targets may see reduced odds in the short term.
3. Focus on jobs and rural consumption: The Budget is expected to focus on job creation and rural consumption, which could lead investors to turn their attention to rural-focused sectors. Consumer and auto stocks like HUL, Dabur (NS:), M&M, Maruti (NS:) and Hero could benefit in the near term.
4. Public Sector Undertakings (PSUs): NIFTY PSE index has seen a post-election sell-off, but selective opportunities remain attractive. same name NTPC (NS:), GAIL (NS:) and bharat electronics (NS:) is viewed favorably despite near-term volatility, backed by favorable medium-term growth dynamics.
5. Infrastructure and Capital Expenditures: Expectations for infrastructure growth and capital expenditures are subject to re-evaluation and may impact valuation multiples in the near term. However, the government’s prioritization of these sectors, along with expectations of continued capital spending, bodes well for the long-term outlook.
6. Mid-caps under pressure: As risk awareness rises, mid-caps may come under pressure, especially those that have outperformed large-caps in recent years.
7. Tax Policy Outlook: Investors may perceive a capital gains tax hike as unlikely in the current scenario, thus influencing market sentiment.
8. Energy sector: The potential inclusion of gas in the Goods and Services Tax (GST) could benefit the gas value chain. Companies like GAIL and City Gas Distribution (CGD) companies can benefit from this potential development.
9. Financial Sector Preference: Citi Research maintains a positive stance on private sector banks over public sector banks within the financial sector.
10. IT Services Caution: The defensive nature of IT services may offer short-term benefits, but Citi Research remains cautious about the sector’s long-term business prospects.
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Read more: Goldman Sachs (NYSE:) Report: Economic Impact of Coalition Government
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