As per a study conducted by Value Stocks, a smallcase manager, the stock market has generally responded favorably to election results, though there is likelihood of some short-term volatility in the months preceding the election. However, given the strong fundamentals, markets will likely continue to remain robust over the long run.
Despite the inevitable chatter and apprehension surrounding elections, the data presented in the table highlights four election cycles spanning over 20 years. During each of these periods, investors have consistently achieved above average returns, whether preceding or following the announcement of election results. Moreover, the data indicates that even within a minimum investment timeframe of one year, investors have experienced significant gains. Therefore, we recommend that investors maintain their positions in the market, regardless of volatility, and remain unfazed by election-related news or rumors.
Shailesh Saraf, smallcase manager and Founder, Value Stocks said, “In 2023, the Indian market witnessed an exceptional year characterized by the launch and impressive performance of significant projects across various sectors. This standout period saw a surge in mid-and small-cap stocks, alongside a record-breaking number of IPOs. Notably, the Nifty 50 saw an increase of 20% in 2023.”
As per the report, Public Sector Undertakings have performed well in recent times and PSU stocks should be kept in radar because of their increased profitability. In 2023, the Nifty PSE Index soared by 77%, surpassing the Nifty 50’s 20% return. Even in 2024, the PSE Index has given a return of 21% as against Nifty 50’s return of 3%. There is potential for further gains due to low valuations as the Nifty PSE Index is still trading at 10 PE.
The public sector indices namely Nifty PSE, Nifty CPSE and Nifty PSU Bank has all outperformed the major Indian indices in a 1-year time frame. This shows that the country is now believing in the public sector undertakings which is adding further strength to the market.
“Investors are optimistic about the Indian government’s development efforts. Public sector companies thrived, buoyed by increased government spending in railways and defense, and the ‘Make in India’ initiative. This led to a substantial increase in market capitalization, nearing ₹20-lakh crore. Expectations of the current administration’s victory in the 2024 general elections and robust order books also contributed to the PSE stock surge, indicating strong macroeconomic fundamentals and high demand”, adds Shailesh Saraf.
The report also touches upon performance of some of the key PSUs and their respective future outlook.
- Railways: India is gearing up to elevate its railway infrastructure development to unprecedented heights in the upcoming years. The agenda encompasses various initiatives, including the procurement of 8 High-Speed Bullet Trains, the revitalization of over 1300 Railway Stations, and investment in 400 Vande Bharat Trains and 3000 new passenger trains within the next 5 years. Additionally, significant strides will be made in advancing the ambitious Dedicated Freight Corridor of India, aiming to accommodate 45% of the nation’s freight. These endeavors collectively present a substantial sector CAPEX opportunity of 50 Lakh Crore in Railways, driven by a vast Total Addressable Market.
- Defence: In 2023, India’s defense sector made a significant expenditure of $81 billion, ranking fourth globally in spending. Defense exports experienced a compounded annual growth rate (CAGR) of 20%, reaching 84 countries. Expenditures covered a wide spectrum, including the acquisition of submarines, torpedoes, aircraft carriers, fighter jets, missiles, establishment of two defense corridors, and procurement of 150 defense and radar systems, with 70% sourced domestically. Various PSU stocks in this sector delivered more than 100% returns on the back of securing huge order books from the government.
3. Public Sector Banks and Financial Institutions: Sustained credit growth, significant improvement in the asset quality, and stable to higher margins drove the robust earnings performance of state-owned banks and subsequently the share prices. The majority of banks express confidence that the ongoing double-digit credit growth will persist in 2024, thanks to the resilience of the domestic economy and a gradual increase in demand from rural regions. The sector’s consistent performance is expected to be sustained due to the quality of earnings, positive growth prospects, and a broader re-evaluation of PSU entities. Another reason is the growth in profitability of these state run banks. PSU Banks in India recorded a YoY profit growth of 29% and a QoQ growth of 11% which shows that the performance of these PSBs.
