The situation of ambiguity has come to an end. This is a big relief for the Investor fraternity as this is a mandate to the run the Government for the next five years and most importantly Congress would have a say as far as the policies and the key ministerial berths are concerned.
Political risk premium, in our opinion, certainly would recede significantly with this decisive mandate. This is likely to help India improve its sovereign rating going forward. The weightage assigned to the Indian Equity within the emerging market space would be realigned. We expect the money waiting at the sidelines to move in now resulting in rerating of Indian equities, driven by the outcome of elections and therefore expect the base PE to move up. Currency is also likely to move up.
We expect the government to move fast as far as Infrastructure activity on the ground level is concerned.
Sectors One Should Focus on are – Banking & Financial, Infrastructure and related [Metals, cement etc] barring Real Estate, Capital Goods, Energy and selectively in Auto.
The markets are likely to do a gap up 4%~5% in the opening trades on Monday. Our Indices have risen almost ~43% from early march. We should not rule out the possibility of smart operators and traders booking profits in the market. Investors should not get carried away with sheer exuberance. Therefore the strategy post the gap opening should be of caution albeit optimism. Investors are advised to do thematic and structured Investment over a period of time.
Kindly note that some banks may fail to report good numbers for Q1, Q2 FY10 due to the stress in the current and past quarters. However, the flurry of activities by FIIs is likely to take these stocks higher as they have substantial BUYING limits as well as low P/E and enhanced reforms.