Markets Could See Short Rally With NDA's Maharashtra Win, Says Motilal Oswal

After the recent correction in Indian equity markets, investors should expect "some undercurrent back in the market", given BJP's lead in Maharashtra and Haryana elections, Motilal Oswal Financial Services Ltd. said.

The brokerage expects the election outcome to start a mini-risk-on rally with Maharashtra, one of the most important states politically and economically, being comfortably won by BJP, it said.

A risk-on rally is when investors have a high-risk appetite and commonly drive up some asset prices. In this environment, stocks outperform bonds.

With elections now behind and BJP getting a strong boost from Haryana and Maharashtra elections, both capex and consumption could see a bounce-back, according to Motilal Oswal.

While midcaps and smallcaps are still trading at expensive valuations, according to the brokerage firm, it said given the recent correction, valuations for large-caps are quite reasonable now.

The brokerage's preferred sectors include Banking, Financial Services and Insurance (private as well as PSU and non-lending NBFCs), capital goods, real estate, manufacturing, consumer discretionary, IT and healthcare.

Among large caps stocks the brokerage likes Mahindra & Mahindra, State Bank of India, Larsen & Toubro Ltd., Indian Hotels Co., ABB, Dixon Technologies Ltd., Bharti Airtel Ltd., Trent Ltd., Hindalco Industries Ltd., Titan Co., and HCL Technologies Ltd.

The brokerage also listed its midcap ideas in its note, which included Angel One Ltd., BSE Ltd., Amber Enterprises Ltd., Ipca Labs, Cummins India, Page Industries Ltd., Godrej Properties Ltd., Coforge Ltd., JSW Energy Ltd., and Gravita India Ltd.

Motilal expects the government to spring into action and start the spending (1H FY25 government spending is flat YoY and is down 17% for Capex spending).

"This, coupled with recovery in rural spending (on the back of good monsoon and expected strong Kharip output), should improve the demand narrative at the margin," it said. "Wedding season in the 2HFY25 (30% higher weddings YoY) could also provide a fillip to demand."

The last two months of correction in the market, with Nifty, Nifty Midcap 100 and Nifty Smallcap 100 correcting by ~10%, is on the back of moderate corporate earnings in 1HFY25, relentless FII selling since October (FII's have sold $17 billion since October), fragile geopolitical backdrop and strengthening dollar index post the victory of Donald Trump in US, according to Motilal Oswal.

Anxiety around Maharashtra elections had further muddied the waters, it said. Last five years in Maharashtra were characterised by political instability, the brokerage said. "With this verdict, the chronic instability is over in one of the most industrialised and economically the most important state of India."