Series 65 – Election and Risks : Our thought process

Last week, we discussed the inflationary market conditions and examined the structural positioning of our portfolio in response to such an environment. The recent elections headings and their outcomes have been a focal point contributing to market volatility last week. Today, we will detail our perspective on the elections and associated risks, as well as our strategic approach and positioning at the portfolio level.

We maintain our stance that election headlines will likely intensify market fluctuations moving forward. In anticipation of the elections, a government-led capex or investment-driven budget would have been the norm. However, given current circumstances, there’s a possibility for a populist budget, which could prompt a market response. This introduces a degree of unpredictability, with potential shifts such as:

1. A slow-down in capital goods and power sectors
2. An uptick in rural-centric initiatives
3. A moderation in banking sector growth
4. An outperformance by the pharmaceutical sector

Looking ahead to FY25, we may witness a moderation in GDP growth. This is attributed to the anticipated slowdown in public capex, although we foresee private capex stepping in to fill this gap within the year. With a rural emphasis expected in the upcoming budget and projected heightened volatility, our strategy involves leveraging this period to increase exposure to sectors we favor. We are fundamentally optimistic about Capital Goods and have a strategic position in the rural sector. Given the likelihood FIIs reducing risk this year,  adopting a flexible and opportunistic stance, with a focus on growth areas, should yield favourable risk-adjusted returns over the next two years.

We will come back with more interesting information on the portfolio and outlook on the market in the following weeks.