In a dominant electoral show, the party dethroned the incumbent Congress government in two of the three states, while retaining Madhya Pradesh with a bigger majority, contrary to exit poll predictions of a neck-to-neck finish.
Motilal Oswal now expects the market to get into a pre-election rally mode. As history shows, the Nifty has returned anywhere between 10% and 35% in the six months prior to the Lok Sabha Elections on all five previous occassions dating back to 1999.
"This augurs very well for macro and policy momentum for India, which at the moment is seeing the highest growth among major economies (both GDP and
corporate earnings)," the brokerage said.
With near-term political events out of the way, Motilal Oswal expets the market sentiments to build on and the rally to strengthen further. It finds risk-reward tempting in largecaps as fundamentals remain supportive for equities with interest rates having almost peaked globally as well as India, strong GDP numbers, and stronger corporate earnings.
At 17.8 times price-to-earnings, the brokerage finds Nifty 50's valuations to be "reasonable" as they are below their Long Period Average of 20 times.
Among sectors, the brokerage leans towards BFSI, Industrials, Real Estate, Auto and Consumer Discretionary.
Motilal Oswal's Top Stock Picks
Within the BFSI sector, the brokerage leans towards India's largest lender
State Bank of India and private lender Axis Bank.
Within the auto space, Motilal Oswal has chosen Mahindra & Mahindra, along with two-wheeler giant Hero MotoCorp, shares of which are already trading at a record high.
Within the industrials and real estate space, the brokerage has opted for engineering and infrastructure conglomerate Larsen & Toubro, which recently completed a successful share buyback, India's largest cement producer UltraTech, which recently augmented its capacity by announcing the acquisition of Kesoram's cement assets, and Mumbai-based realtors Godrej Properties and Sunteck Realty.
Within the discretionary basket, Motilal Oswal has opted for two Tata Group companies - Titan and Indian Hotels. The former, recently crossed ₹3 lakh crore in market cap, while Indian Hotels recently received an upgrade from Kotak Institutional Equities, who also highlighted it as a top pick.
With most broader market names trading either at 52-week or record highs, Motilal Oswal has opted for another hotel name in Lemon Tree, PNB Housing Finance, Angel One, which is up 6x from its IPO price, and recent listing Global Health (Medanta.)
What should traders do on Monday?
A clear mandate for the BJP in Hindi heartland states is likely to rejuvenate Dalal Street bulls and take markets higher when trade resumes on December 4.
“The Indian stock market had started factoring in an edge to the BJP in state elections, but 3-1 was not discounted; therefore, the market is likely to celebrate with big gains,” said Sunil Nyati, managing director of Swastika Investmart.
Nyati said the market has already started the pre-election rally for May 2024 from mid-November, and now this rally will get pace after the outcome of state elections. Now, two factors will play out FOMO and TINA. The feeling of missing out (FOMO) and the fact that there is no alternative (TINA), he said.
"FIIs are still on the sidelines, and now they have FOMO feelings. After the state election outcome and surprising strong GDP numbers, it is clear that there is no alternative to India in terms of political stability and economic growth. Now these two factors have created a canvas for a pre-election rally," as per Nyati.
(Edited by : Hormaz Fatakia)
