As election season approaches, investors often seek strategies to take advantage of potential opportunities while mitigating risk. Post-election policy changes or continuations could spur the next wave of investment growth in the economy, offering potential benefits for astute investors.
Throughout the past four national elections, market performance has reflected expected outcomes, with notable outperformance during election results periods. Convergence of beneficial reforms is a key driver, highlighting the potential for positive gains regardless of the political climate.
Since 2014, India has witnessed political stability under the majority rule of the BJP, and is currently on a trajectory where political continuity is expected, amid national elections.
The Indian economy is riding on a long-term secular megatrend, fueled by clear drivers propelling it towards multi-decade growth prospects. The revival of the investment cycle signals a solid GDP growth trajectory of 6-7% over the next five years. India appears resilient to global economic headwinds, with active participation in the housing, corporate spending and government spending sectors.
The investment-to-GDP ratio is on an upward trend after a long period of decline, suggesting the possibility of a growth cycle driven by capital investment. This trend paves the way for enhanced productivity growth and promises opportunities across a variety of sectors.
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Looking ahead to 2025, several thematic investment vehicles emerge.
infrastructure: As mentioned in the recent budget, government capex is set to increase by 11% compared to FY24, and infrastructure companies will particularly benefit from private capex post-election.
real estate: Strong housing demand and strong market performance suggest continued growth in the real estate industry. Favorable market conditions and low interest rates are expected to drive industry expansion. We expect real estate to be one of the key drivers of the Indian economy in the coming years.
Renewable energy: India is focused on expanding its renewable energy capacity, and there is significant investment potential, particularly in solar energy, with plans to triple capacity by 2030.
Discretionary consumption: With the rapidly expanding upper-middle-income and high-income population, companies that cater to discretionary consumption are expected to experience significant growth over the next five years.
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In past general elections, stock markets have gradually priced in expected outcomes, highlighting a trend toward stable governance with a development agenda. Against this backdrop, a constructive domestic macroeconomic outlook suggests that capex-led expansion is likely to sustain the growth cycle.
As investors navigate complex election dynamics, strategic positioning in line with evolving market dynamics remains paramount. A nuanced understanding of policy changes and sectoral opportunities allows investors to optimize their portfolios for long-term success during election cycles.
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– Prabhat Ranjan and Vijay Chauhan are co-fund managers of Right Horizons PMS.
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