Polls bring policy-related stocks back in focus

Mumbai  November 27, 2013: The coming general elections have brought policy-related stocks back into the limelight, with stocks in the fertiliser, oil and gas, sugar, infrastructure and capital goods segments rallying up to 25 per cent on the BSE in the past month, compared with BSE Sensex’s rise of about one per cent.

“Historically, the Indian market has rallied sharply after any favourable election outcome, that is, a stable government, with a single party holding a commanding position in Parliament,” says Jitendra Sriram, equity strategist and head of research for India at HSBC Securities & Capital Markets.

Andrew Tilton, chief Asia-Pacific economist at Goldman Sachs, says: “The parliamentary elections in early 2014 are a major area of uncertainty, with a potentially large impact on policy reforms and investor/corporate sentiment in either a positive or negative direction.”

Building gains

Infrastructure and capital goods stocks saw the sharpest rise among policy-related counters. The S&P BSE capital goods index has outperformed the market, gaining about six per cent in the past month, against a 1.3 per cent fall in the S&P BSE Sensex. In the past three months, it surged about 29 per cent, compared with a 10 per cent jump in the benchmark index.

The rally in select counters has also been aided by an impressive show in the September quarter results and the fact that earlier, these stocks had taken a beating, analysts say.

“In our view, if the Bharatiya Janata Party-led National Democratic Alliance comes to the power, it would be positive for infrastructure-led sectors, while a Congress-led United Progressive Alliance government would be positive for consumption-led sectors,” says HSBC’s Sriram.

Daljeet S Kohli, head of research at IndiaNivesh Securities, says, “We continue to maintain that companies with exposure to consumer vertical (such as Voltas, Greaves Cotton and Crompton Greaves) would be less impacted by the down cycle. Companies with strong liquidity (Kirloskar Oil, Ingrsoll Rand and Voltas) are well positioned to face the challenging macro environment. We sense unless any major policy announcement is made, a revival in capital goods sector is still a few quarters away.”

In the realty space, Parikshit Kandpal, an analyst with Karvy Research, picks Sobha Developers and Puravankara; and Oberoi Realty and Kolte Patil in the western market. Among companies in the North, he awaits more clarity on DLF’s deleveraging plans. He expects the Aman deal to be closed by the third quarter of FY14, which would lead to a strong re-rating for DLF.

The coming general elections have brought policy-related stocks back into the limelight, with stocks in the fertiliser, oil and gas, sugar, infrastructure and capital goods segments rallying up to 25 per cent on the BSE in the past month, compared with BSE Sensex’s rise of about one per cent.

“Historically, the Indian market has rallied sharply after any favourable election outcome, that is, a stable government, with a single party holding a commanding position in Parliament,” says Jitendra Sriram, equity strategist and head of research for India at HSBC Securities & Capital Markets.

Andrew Tilton, chief Asia-Pacific economist at Goldman Sachs, says: “The parliamentary elections in early 2014 are a major area of uncertainty, with a potentially large impact on policy reforms and investor/corporate sentiment in either a positive or negative direction.”

Building gains

Infrastructure and capital goods stocks saw the sharpest rise among policy-related counters. The S&P BSE capital goods index has outperformed the market, gaining about six per cent in the past month, against a 1.3 per cent fall in the S&P BSE Sensex. In the past three months, it surged about 29 per cent, compared with a 10 per cent jump in the benchmark index.

The rally in select counters has also been aided by an impressive show in the September quarter results and the fact that earlier, these stocks had taken a beating, analysts say.

“In our view, if the Bharatiya Janata Party-led National Democratic Alliance comes to the power, it would be positive for infrastructure-led sectors, while a Congress-led United Progressive Alliance government would be positive for consumption-led sectors,” says HSBC’s Sriram.

Daljeet S Kohli, head of research at IndiaNivesh Securities, says, “We continue to maintain that companies with exposure to consumer vertical (such as Voltas, Greaves Cotton and Crompton Greaves) would be less impacted by the down cycle. Companies with strong liquidity (Kirloskar Oil, Ingrsoll Rand and Voltas) are well positioned to face the challenging macro environment. We sense unless any major policy announcement is made, a revival in capital goods sector is still a few quarters away.”

In the realty space, Parikshit Kandpal, an analyst with Karvy Research, picks Sobha Developers and Puravankara; and Oberoi Realty and Kolte Patil in the western market. Among companies in the North, he awaits more clarity on DLF’s deleveraging plans. He expects the Aman deal to be closed by the third quarter of FY14, which would lead to a strong re-rating for DLF.

Courtesy: The Business Standard