- The results of the general elections 2024 are just a few days away, and markets are almost near their peak.
- Traditional valuation norms have been abandoned, and new procedures are being used to support the current pricing.
- Diwakar Rana, Senior Research Analyst at Prudent Equity, advises investors to hunt for company-specific growth triggers and look for growth at a reasonable price amid the volatility and overvaluation.
With the general elections 2024 approaching, markets are near their peak, and investors are advised to focus on company-specific growth triggers amid the volatility.
Sensex Regains 76,000 Mark and Nifty Hits 23,000
The major indices are trading at a premium compared to the past ten years, and the valuations are fairly stretched. The markets are in a euphoric state, and following the election, they might stay that way for a while. Therefore, it is advisable to be nimble and selective, also it will be wise to concentrate on businesses that exhibit consistently strong earnings growth and are available at reasonable valuations.
Market Strategy Post-Election Outcome
The future is unknown to everyone, so we must concentrate on the present. The decision to invest or not should be a function of the current situation and not governed by prior experiences and future uncontrollable outcomes. The focus should be on the individual companies; if valuations have risen, profits should be booked; otherwise, companies should be held. What the market thinks should not bother the investors who are holding good growth businesses with a long-term investment horizon in mind.
Largecaps Outperforming Midcaps and Smallcaps
The markets hate uncertainty and as soon as the volatility increases, the smallcaps and midcaps go out of fancy, investors run for capital protection rather than appreciation. The current volatility has led to some buying in the blue-chip companies. For the last 12 years, we have always been small and mid-cap investors and we believe that big wealth is created in the small and mid-cap space and this shall continue in the coming future.
FPIs and the Likely Third Term of Narendra Modi
The Middle East’s conflict scenario hurts net importers like India, which the FIIs dislike. They also want consistency in governance. A majority win of the ruling administration might defuse FII tensions by ensuring the continuation of the roadmap and policies.
Investment Strategy Amid Volatility
Everyone has begun to buy into the new era and new theme. Traditional valuation norms have been abandoned, and new procedures are being used to support the current pricing. A surge of over-optimism and overconfidence is unleashed, leading people to overestimate their gains, and underestimate and ignore the potential investment risks. While buying into a new theme can be fun, more insight and conviction is derived from looking at the companies from a bottom-up perspective. Amid the volatility and overvaluation, the investor should hunt for the company-specific growth triggers and look for growth at a reasonable price.
Sectoral Outlook Post-Elections
We have a strong positive outlook on real estate, banking, infrastructure, and housing financing. In our opinion, India’s growth trajectory has just begun and there is still a long way to go. All of these industries will yield strong performance in years to come. In the upcoming years, infrastructure companies can have revenue growth of 15% to 20%, and some are even anticipated to see growth of above 30%.
The banking and housing finance industries are the backbone of the expanding economy and are positively correlated with the GDP of the nation; in other words, as the nation grows, so too will the banking industry. In the upcoming years, these companies can increase their loan books by more than 20%. The real estate sector is one of the sectors that is booming due to the increase in income, increased number of households, and urban migration. Many markets like NCR and MMR have seen a huge surge in demand for luxury projects.
Advice for New Investors
We believe investors should be selective while making a bet on any company. In this market, the companies with the highest likelihood of earnings growth should be the primary focus, and the thesis should not be focused solely on one long-term industry story.
Conclusion
As the general elections 2024 approach, the markets are in a state of euphoria with stretched valuations. Investors are advised to remain nimble and selective, focusing on businesses with strong earnings growth available at reasonable valuations. Amid the volatility and overvaluation, company-specific growth triggers should be the primary focus, and sectors like real estate, banking, infrastructure, and housing financing are expected to perform exceptionally well post-elections. New investors should be selective and focus on companies with the highest likelihood of earnings growth.
