NIFTY 50

Expect continuation of policies if NDA returns to power, says Manulife AMC

Updated : May 20, 2019 10:37 AM IST

The marathon seven-phase Lok Sabha elections came to an end on Sunday. The News18-IPSOS exit poll predicts a thumping majority for the Narendra Modi government in the elections. The exit poll projects the Bharatiya Janata Party-led National Democratic Alliance (NDA) to secure around 336 seats with the BJP alone predicted to secure 276 seats, crossing the halfway mark comfortably on its own.

The vote counting will begin on May 23.

Rana Gupta, managing director, India equities for Manulife Asset Management and Sanjay Dutt of Quantum Securities shared their views and outlook on the outcome of the elections.

“Foreign institutional investors (FIIs) have been a bit cautioned about emerging markets (EMs) particularly since May 1 since this tariff war (between the United States and China) restarted. However, that said there are certain positives have emerged", said Gupta.

"The possibility of a stable government should mean that there is a continuation of policies regarding formalisation, regarding public investment and maybe continuing with the healthier services of banks and so on and so forth and also some comfort on the fiscal side which should enable Reserve Bank of India (RBI) to move a bit on the monetary side.

"So all this put together, Indian assets look good. In a trade war scenario, India gets much less impacted than the other markets. So put all this together, short-term to medium-term, the prospects of Indian assets look quite good,” he added.

Dutt said: "The biggest benefit of these exit polls are correct and we have even come to the lower end of the range of the exit polls that talks about 270-280 for the NDA. At least we are sure that we will have Prime Minister Narendra Modi heading the government which translates into continuity in terms of fiscal monetary policies, key constitutional posts that we have today and the most critical thing is that we are going to deal with a known set of people who we know, what their mind-set and thought is about the economy and policies ahead instead of looking at the other end which has been a coalition.

"Irrespective of what the political formation that comes, select second-run companies, midcaps are set for a big re-rating now primarily because they have aggressively set right their balance sheets, debt has turned into a four-letter word for India. It is a very positive for the equity analysts like us that over the next few years, we will not see rampant debt-based, credit-based expansion or pure credit-based working capital ballooning weighing on the system which eventually leads to a collapse that could be seen in the last two-three years,” Dutt added.

“I wouldn’t jump to taking positions today because I think this 250 point Nifty would probably be sold into or even if it is not sold into, it will just sustain because of short covering. There are large number of shorts, which are still there in the system because people were looking at election results and quite a few of them would be coming aggressively today because even if you take the worst case of exit polls, they wouldn’t be in a comfortable position to hold their shorts. So in any case, I would advise investment positions to be taken two days later when we have a clear government. There will be enough opportunities, there will be volatility,” said Dutt.

“Investment decisions have to be taken 2-3 days later. Some of the consumption names still have a problem. Auto still has a problem, it is more of a structural problem in the industry than a pure macroeconomic related problem because auto is adjusting to a new reality in terms of the nature of technology, vehicles, diesel, a lot of things being thrown at it and that adjustment is still happening. It is going to take a little more time. If I were to take a bet after the election results, I would go into infrastructure focused stocks because that is one place, government realises there is no other option to be aggressive because private investment and capex will not pick up instantly. Government expenditure will have to sustain, the economy will have to sustain jobs because the government is cognisant of the fact that they have to address jobs as an immediate economic problem, which can only be done in the immediate short-term through government expenditure over the next few years or few months,” added Dutt.

“We would have a constructive view on the following sectors which are benefiting from the current top-down policies. For example, one of the things that this government has done – they have made the economy more formal, organised. This government has been fairly aggressive and we hope that they will continue to be aggressive on public investment. Because of insolvency and bankruptcy code (IBC), the private sector banks’ balance sheets have transformed. That is also another part of market which looks good,” Gupta added.
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