Expert view: Market may see volatility after election; upside for gold, silver may be limited, says Damania of MojoPMS

Edited excerpts:

How do you expect the market movement after the Lok Sabha election outcome on June 4? When can we expect fresh record highs?

The base case scenario anticipates the formation of a government by the BJP. However, we anticipate potential market volatility post-election, especially if the BJP fails to exceed 350 seats. 

Once the electoral event concludes, the market will shift focus to appointing the next finance minister and the forthcoming Budget, which could further contribute to market volatility. 

We are at a record high, with India’s market capitalisation reaching $5 trillion for the first time. 

We sense that strong earnings growth and liquidity will push India’s market cap to $10 trillion by 2029.

Also Read: Bull market needs fuel by way of equity capital or debt: Shankar Sharma of First Global

The new government will present a fresh Budget for FY25. What areas of the Budget will be in focus from the market’s perspective?

The market prioritises consistency in policy actions. A Budget aligned with existing policies will be positively received. Employment generation is a key focus, with the market anticipating significant support for manufacturing to double its GDP share. 

Prime Minister Narendra Modi has committed to launching major reforms within the first 100 days, which will also be a focal point for market observers.

Also Read: Lok Sabha Elections 2024: Market may see sharp 20% decline if election results deviate from expectations -Experts

When do you expect the market to start a fresh rally? What sectors can lead the next leg of the rally?

Over the past year, the BSE 500 has surged by over 35 per cent, positioning it in the top quartile globally. 

Current market valuations are high, suggesting potential for both time and price corrections in the near term. 

Sectors such as defence, infrastructure, and railways, which have performed robustly over the past 18 months, are expected to continue their strong performance. 

Additionally, the pharma sector appears promising due to growth in both domestic and global markets.

Also Read: Lok Sabha Election 2024: Nifty 50 may see a rally to 23,000, but can that last longer? Bernstein answers

When do you expect the RBI to cut rates? What is your outlook on domestic inflation?

Since the beginning of 2024, inflation has been gradually declining, though the reduction pace is slow. Geopolitical factors and food inflation pose risks to inflation management. 

The spike in metal prices and the necessity for the RBI to protect the rupee while monitoring the Federal Reserve’s actions suggest that the RBI’s first rate cut is anticipated in the second half of 2024.

Also Read: Will Indian share market continue to correct before Lok Sabha election 2024 result? Experts list out 28 stocks to buy

Do you see value in FMCG stocks, given the expectations of a normal monsoon this year?

The FMCG sector could emerge as a strong performer in FY25. Many FMCG companies project double-digit growth, with rural demand rebounding and a positive monsoon forecast. 

Companies are also considering restructuring, particularly their foreign subsidiaries, to enhance return on equity (ROE). 

The risk-reward profile in the FMCG space is favourable towards the reward.

What has led to the strong selling by FIIs? When can this trend change?

Typically, foreign portfolio investors (FPIs) reduce activity after a period of heavy investment, as observed in FY2024. Consequently, record inflows are not anticipated in FY25. 

Two main factors contribute to FPIs’ cautious stance: the elevated valuations of the Indian market and the profit-taking following a robust market rally. 

Additionally, the improving economic situation in China diminishes the ‘sell China and buy India’ theme.

Gold and silver prices have seen strong gains this year. What should be our strategy for investment in precious metals?

Investment in gold and silver should not be driven solely by price movements. 

To mitigate volatility, an asset allocation strategy, wherein gold and silver constitute 15 per cent of the overall portfolio, is advisable. 

At the beginning of 2024, we indicated that gold and silver would yield returns in the teens, with silver expected to outperform gold. 

With similar returns achieved in the first half, the upside is limited.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.

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Published: 24 May 2024, 03:30 PM IST