Impact of the Election on Share Market

The equity markets are looking at a stable government with a clear focus on the reforms process.  It was the policy paralysis that affected the growth rate as whole and ultimately other micro economic fundamentals over the past five years.

Hence it is of the utmost importance that the new Government focus on the reforms process and that too at a rapid pace in order to instil the lost confidence back in to the system. 

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This is also true that things would not change overnight.  However one needs to understand that the equity markets usually run on expectations as the investors discounts future prospects more than the past performance.   While this is one aspect, another important aspect is that of valuations.

If NDA emerges as a single largest party and almost got the required numbers, it could provide stability in the equity markets.   Election results may affect the market in the shorter term, ultimately fundamentals will drive them.

Things are actually changing for better as the macroeconomic scenario is improving.  The Q4FY14 results have been better than street estimates till date.  Considering the same, there are likely to be EPS estimate upgrades for the FY15 and FY16 as well. 

According to consensus EPS estimates for FY15, for the Sensex EPS is expected at Rs 1542 and FY16 it is estimated in the range of Rs 1790-1800.  Considering these, currently the Sensex discounts its FY15 earnings by 14.7x.  This is in line with the historical forward PE enjoyed by the markets and also provides some amount of room for an upward movement.

Considering the economic and social agenda of the different parties, we are here providing a few sectors that would benefit more:

Infrastructure:  infrastructure is a sector which creates the highest number of job opportunities.  In the past we have seen that NDA has always focused on the infrastructure segment.  Especially road projects and water treatment companies are likely to be major beneficiaries.  We can also add in to Railways in to this where planned dedicated freight corridors and High Speed trains would be in limelight. We expect strong momentum in the infrastructure sectors industry. 

Healthcare:  India still lags on the healcare index and a lot of investment is needed in it.  With the UPA and NDA government both are planning to increase its healthcare spending, we could see major opportunity in this sector. We feel the healthcare sector in India has been witnessing good growth and public spending on the same would only results in accelerated growth. 

Oil & Gas:  Oil & Gas sector is expected to be a major sector as we import appx 75-80% of our total petroleum product which leads to higher CAD.  NDA’s major priority would be to give fast approvals on oil discovery so that we can explore more Oil & Gas in the country.  And NDA also want to set up  gas grids to make gas available to households and industries.

And few other sectors which could benefit are Electricity, Agriculture and Manufacturing.

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