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Election effect: Is it time to make portfolio changes if government opts for economy stimulation?

Election effect: Is it time to make portfolio changes if government opts for economy stimulation?

Election effect: Is it time to make portfolio changes if government opts for economy stimulation?
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By Anuj Singhal  Dec 17, 2018 6:32:30 AM IST (Updated)

One thing which the state elections have told us is that middle class which so steadfastly backed Modi in 2014 has given him a warning.

This has been a tough year for the “buy and sit” kind of investors. Despite all the big moves of last few weeks, the Nifty is up all of 2.4 percent this year. Worse still, the midcap index is down 17 percent which would mean even good portfolios would be down 10-20 percent. However, there is a catch...

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This has been one of the most bipolar years in Indian stocks in recent years. As I said, while the index is up only 2.4 percent, the index components have a different story to tell. 22 Nifty stocks have given positive returns and 28 have been in the red. As many as 17 stocks have fallen 20 percent or more and 7 index stocks have gained more than 20 percent.
TCS has been the biggest stock this year, returning a phenomenal 47 percent and Tech Mahindra (41 percent), Infosys (34 percent) and HUL (35 percent) are companies among the classical defensive stocks. You may argue, HUL is no longer defensive given its last 4 years performance but well, you get the gist. The only outlier is Bajaj Finance which is up 42 percent and isn’t in defensive category.
On the other hand, there are some really big losers as well, headed of course by Tata Motors, which has fallen 61 percent, HPCL and BPCL dipped 46 percent and 35 percent, respectively, and then, the real dagger – dream stocks like Eicher and Maruti are down more than 20 percent. Cement has underperformed so much that the erstwhile titans of Indian markets ACC and Ambuja are no longer part of the index.
Is that about to change after the state elections? I think yes. One thing which the state elections have told us is that middle class which so steadfastly backed Modi in 2014 has given him a warning. They can feel the pinch and it’s time to perhaps stimulate the economy.
From now, up until the interim budget, I won’t be surprised if we see loose fiscal and monetary policy and while you may debate what that might mean for the market’s health in the long term, in the near to medium term, there are clearly opportunities.
My sense is starting now, you would see some money coming off from the defensives and moving into beta and domestic plays. The huge buying in Hero Moto clearly sets an example. I would expect some buying in cement, auto, housing, construction, home improvement, etc. over the next few weeks and months. This perhaps could be a bit of a turning point for domestic stocks.
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