What next for Nifty after hammering on election results? Experts advise a shift in portfolio

The Bharatiya Janata Party’s failure to secure a majority is expected to keep the markets rangebound in the short term, as the fallout of the unfavourable election verdict has been priced in, experts say. With elections out of the way, the focus will now shift to other triggers like the Budget and policy announcements, specifically continuation of the previous policies.

On June 4, the Nifty and Sensex crashed 6 percent each, reflecting the market’s concerns on policy continuity because of the weaker mandate for the NDA coalition. Mid and small caps fared even worse, with respective indices dropping 6-7 percent.

Ajit Mishra, SVP Research at Religare, said that the market could either experience a time correction or face price corrections in specific sectors. “Markets could be in for a time correction, or even price corrections in certain pockets,” Mishra noted. He identified critical support levels, stating, “21,000-21,200 should be the support zone on the downside. Any dip below that would trigger a price-wise correction and might result in a further decline of around 1,000-1,500 points.” Conversely, he suggested that a recovery could see the Nifty heading towards the 23,400-23,500 zone, which could act as a strong hurdle.

Kranti Bathini, Director of Equity Strategy at WealthMills Securities, also anticipates a period of consolidation. “The market sentiment has turned completely negative as the NDA lead number came below 300,” Bathini said. He expects the index to stabilise within the “22,000-23,000 range for some time — till about Budget.” Bathini said the market would watch for the signs of policy continuity and the budget’s impact on sentiment, saying that these factors will play a crucial role in determining the market’s direction.

Ambareesh Baliga, veteran market expert, offered a cautious outlook, predicting a drifting market with intermittent gains and losses. “It will not be a one-way down for the market; there could be a bump up when the government is formed,” he said. Baliga sees the market experiencing “small cuts every other day” rather than a major fall, with the upside capped at “maybe 500 points above this level, till about the Budget time.”

Ahead of the elections, and through two quarterly corporate earnings, Nifty has traded volatile so far this year. The index is only up 142 points for this calendar, but managed to make a new all-time high of 23,338.7 on June 3.

Investment strategies amid volatility

Amid the volatility and uncertainty regarding the progress of the government’s development agenda, Ajit Mishra suggested focusing on defensive sectors, particularly FMCG, due to expectations of a better monsoon and a turnaround in rural demand. IT and private sector banking are the other two sectors on Mishra’s list of favourites.

Kranti Bathini said consumption and pharma stocks were bound to do well in the short term as investors are suddenly having second thoughts about overpaying for growth stocks. However, for long-term investors, Bathini advocated sticking to India’s manufacturing themes, suggesting this area would continue to be a strong investment choice.

Ambareesh Baliga said the sectors previously driven by government focus, such as defence and railways, may get badly hit. “All the sectors where the government was pushing earlier, such as defence and railways — that focus could get diluted to a certain extent,” he said.

Earlier, in May, Prime Minister Narendra Modi, in a TV interview highlighted the impressive performance of stocks of state-run companies as evidence of the nation’s economic strength, citing the example of defence manufacturer HAL. “Look at where the PSU companies’ shares have reached today. PSU shares at a time were synonymous with falling prices. But now, in the stock market, their value is rising, several times. Look at HAL (Hindustan Aeronautics Ltd) — it has posted record profit in the fourth quarter of Rs 4,000 crore.”

HAL stock has nearly tripled in the last one year. It fell as much as 18 percent on June 4, as BJP fell short of a single party majority. Similarly, Bharat Dynamics, which has jumped 156 percent in the last one year, fell 10 percent today.

Instead, Baliga recommended IT, pharma, and FMCG as safer bets in the current environment. He warned against PSU bank stocks, which have performed well over the past year but are now at risk of decline. “PSU bank stocks, which have performed extremely well in the last one year or so, are the ones that will fall. Private banks may outperform,” he said.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.