Focus on these 6 sectors for policy continuation after general election, says investment adviser

Following the general election results, “companies working with the government’s infrastructure initiatives are poised for sustained growth,” Shailendra Kumar, chief investment officer at Narnolia Financial Services, told Moneycontrol.

In addition, opportunities should be sought in the automotive parts, chemicals, pharmaceuticals and electrical and electronic machinery industries, he said.

Shailendra, who has over two decades of experience in fund management and investment advisory, expects mid-cap and small-cap companies to take profits after the general elections.

What is the consequence of the huge dividend payment by the RBI to the government?

The Reserve Bank of India’s (RBI) decision to more than double dividend payments to the government is a welcome surprise. This significant increase is likely due to the high yield on the RBI’s significant foreign exchange reserves. The dividend of Rs 2.1 lakh crore will provide a much-needed shot in the arm to the government’s finances. It is expected to reduce the fiscal deficit by almost 0.35 percent, easing pressure on the money market as the government’s borrowing needs are likely to decline.

Moreover, given the potential for lower fiscal deficit, India’s credit rating from credit rating agencies may improve in the future. This would mean a more robust and fiscally responsible economy.

What topics should we focus on if there is to be a continuation of politics after the general election?

Companies that adapt to government infrastructure pressures are poised for sustainable growth. Also look for opportunities in automotive parts, chemicals, pharmaceuticals, and electrical and electronic machinery. Large banks offer an attractive risk-reward proposition due to their strong fundamentals.

As India’s economic confidence grows, it is expected that well-run Indian companies will become major players on the international stage. In several industries, Indian companies have the potential to be among the top three leaders in terms of market capitalization. This presents a unique opportunity for investors seeking long-term wealth creation.

What do you expect from the RBI’s monetary policy in June? Will the RBI continue to worry about food inflation even though there is hope for a good monsoon this year?

Although global inflation appears to be cooling down and central banks such as Brazil and Switzerland are initiating interest rate cuts, I do not expect the RBI to follow suit in June. Moreover, the June policy will take place right after the election results and the RBI would like to know the upcoming budget before taking a final stand. Political meetings of the US Federal Reserve and the European Central Bank also take place in June. The RBI is likely to monitor its decisions before making any adjustments to the interest rates.

Sectors you continued to invest in even after the March quarter results?

Our portfolio strategy has changed slightly, focusing on optimizing exposure through market capitalization. We are exiting small-cap holdings that appear to be overvalued and strategically increasing our allocation to large-cap stocks with promising growth potential. Sector selection remains largely consistent.

We favor companies that can benefit from government infrastructure spending plans. Additionally, we maintain a positive attitude towards the banking, automotive and consumer Internet sectors. It is worth noting that based on the March quarter results, the chemical sector appears to be regaining momentum.

Do you expect a drastic change in market trends, especially after the announcement of the Lok Sabha election results on June 4?

While there may be an initial rally following the election results, I expect some profit-taking in the mid- and small-cap sectors. This is because many of these companies are currently trading at high valuations, which may require a price adjustment or a period of consolidation.

Are you increasing the visibility of companies creating AI infrastructure?

We are bullish on Indian artificial intelligence (AI) companies. Historically, during periods of rapid growth, the largest economies tended to dominate the key technologies of that era. For example, China used telecommunications equipment, electric vehicles and solar energy during its high growth period (2005–2020). Similarly, Japan and South Korea established themselves in the consumer electronics market (such as televisions) during the economic boom.

India is currently on the cusp of its greatest growth phase, and AI could become the defining technology of the next decade or two. As a result, Indian companies providing infrastructure for AI development are likely to see significant growth for many years to come.

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