In the very near term, we expect the market to remain obsessed with government formation exercise, with a keen eye on key cabinet portfolios such as Finance, Defense, Roads, Energy, Commerce, and Railways.
With elections now behind, fundamentally, India remains in a very good shape with almost a mini-Goldilocks moment with excellent macros (GDP growth of 8.2% in FY24 on the back of ~7% growth in FY23, inflation at ~5%, both current account and fiscal deficits well within tolerance band, stable currency, etc.), solid corporate earnings (Nifty ended FY24 with 25% earnings growth and FY25/26 earnings are likely to post 14-15% CAGR) and valuations at ~20x one-year forward earnings. After the initial disappointment and anxiety around government formation, we expect the focus to revert to fundamental bottom-up stock picking. That said, sectors with over-heated valuations and recent sharp outperformance viz. Industrials, Railways, Defense, and PSUs may see more moderation in valuations before they become attractive again from the risk-reward perspective.
Largecaps: ICICI Bank, ITC, HCL Tech, Coal India, SBI, L&T, M&M, Ultratech, CIFC and Hindalco;
Midcaps: Indian Hotels, Ashok Leyland, Godrej Properties, Global Health, KEI Industries, PNB Housing, Cello World, and Kirloskar Oil.
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