5 sectors that will benefit the most if Modi 3.0 comes to power: Sharekhan

The 2024 general election is coming to an end. Voting has already ended in almost 90% of parliamentary seats across the country. If a BJP-led government comes to power, it is likely that the new government will give a major push to reforms in areas such as ease of doing business, measures to increase inflow of government bonds, simplified tax code, widening the scope of GST, etc. , according to the latest note from brokerage house Sharekhan.

If the BJP remains in power for a record period, the brokerage expects domestic cyclical sectors such as infrastructure, industrials, defence, capital goods and automotive to continue to be the main beneficiaries.

The brokerage said the main beneficiaries will continue to be domestic cyclical sectors such as infrastructure, industrials, defense, capital goods and automotive. In its portfolio strategy, the brokerage house stuck to the long-standing 3C investment themes – Capex, Capital and Consumption. “In 2024, we maintain our position of increasing our focus on large-cap companies and limiting our exposure to small- and micro-cap companies; We also advise investors to start accumulating selected IT and specialty chemicals stocks.”

It is worth noting that most pre-election polls point to a certain victory for the current BJP government, which maintains a single-party majority in the Lok Sabha for the third time in a row. However, the low overall voter turnout compared to 2019 maintains uncertainty on the market due to the possible loss of some seats. At the end of the sixth stage, voter turnout in 2024 is slightly lower at 66.4% compared to 67.4% in 2019, although it is still significantly higher than the historical average.

Sharekhan says the current market volatility will stabilize by June 2, after the exit poll results, and attention will shift to the most likely outcome of the BJP emerging as the largest party, with a stable government and policy continuity, and new reforms in a hurry.

The brokerage house claims that under Modi 3.0 it expects a significant acceleration of structural reforms, although their scale will depend on the number of seats won. “While setting out the roadmap for Viksit Bharat 2047, we envisage major policy reforms on ease of doing business to attract FDI investments and sovereign rating upgrades, driving greater inflows into government bonds, given their inclusion in global bond indices and other reform-related measures Judiciary, Uniform Civil Code, Land Act, Simplified Tax Code and introduction of more products under GST.”

The brokerage expects that in the short term, post election results, the small and mid-cap segment may outperform large caps over the next two weeks, with a focus on the domestic cyclical and PSU sectors. “Then, in the run-up to the Union Budget 2024-25 (which will be presented in the first week of July 2024), there may be an opportunity to book profits amid tax reform concerns, while lagging sectors such as industrials pharmaceuticals, FMCG and IT would perform better.”

The brokerage says that in the event of a negative scenario, market sentiment may be dampened by uncertainty over political stability and there may be some knee-jerk reaction.

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