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Below the Quote on 'Stance on equities ahead of the general election results' by Jitendra Gohil, Chief Investment Strategist, Kotak Alternate Asset Managers

“We maintain our constructive stance on equities ahead of the general election results on 4th June. Our investment committee decided to maintain a neural stance on equities i.e. to stay invested inline with asset allocation.

In our view, there is a high probability that the NDA will form the government with the BJP getting the full majority. Elections will be over on 1st June and the market will react to exit polls on 3rd June (Monday). We note that in the past two elections, the BJP got significantly higher seats compared to poll predictions. 

It is true that anti incumbency, concerns over formal job creation, the perception of hardline hindutva ideology and  allegations of misusing government agencies like ED, CBI etc may negatively play on the voters mind. However, more support from the women's voter base,  excellent handling of the economy in difficult times with good control over inflation and rupee, assertive foreign policies and above all weakened opposition should outweigh the reduction in voteshare, in our view.

In our view, +/- 10-20 seats for the BJP compared to the previous seat count of 303 should not make much of a diffence to the market trajectory. Investors are looking for a stable government with continuation of policies. Hence, full majority for BJP will be BAU for the market, in our view. 

What if the BJP gets less than the full majority mark and forms a coalition government with NDA partners?  In this scenario the market may correct 5-10% in our view. However, in the medium term it won't make much of a difference and the market may recover. However, in case NDA fails to form the government - probability is thin though- the market may fall 20%+ and will take time to fully recover.

This unexpected outcome may trigger a major sell off in PSUs, capital goods, manufacturing (especially PLI scheme related sectors), defence related stocks; but the IT and FMCG sectors may see buying interest, in our view. While in the long run it is difficult to predict the policy shifts between governments, we believe the previous 10 years of reforms will be difficult to reverse. Nevertheless, it is prudent to diversify portfolios and reduce risks ahead of the election results as the upside could be limited but downside (although the probability of the NDA losing is thin) could be more than 20%. In case of a weaker mandate or NDA losing, the INR could also come under pressure, hence would like to reiterate our positive stance on gold as well. 

Apart from election related uncertainty the market will keenly watch further strengthening of the Indian economy. We continue to believe the consensus is still underestimating India's growth potential and there could be more upward revisions to growth numbers. Tax collections have surprised on the upside meaningfully and CAD is well under control. Bond yields and the INR has remained remarkably stable reducing country risk premium for India. Rural is recovering with FMCG sales in rural areas now growing faster than urban. Two wheeler sales have recovered meaningfully which confirms strength returning in the rural segment. This coupled with significant improvement in corporate balance sheet and strong banking fundamentals should help India to command premium valuations. 

FPI have been waiting for valuation correction as other markets look cheap; however, we note that FPI now holds 17% of the  Indian equities, which is at 11 years low while India's weight in the emerging market has doubled to over 18% over the past 5 years. Hence, we think valuation may remain elevated with strong support from domestic flows. With 20x PE on March 2026 Nifty EPS of 1230, we arrive at 24600 target for the Nifty Index one year from now. We acknowledge the froth in the small and mid-cap space and hence recommend to apply caution with careful evaluation of fundamentals before investing in this space.”

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