Investors cheered the Lok Sabha election results on Thursday, with the benchmark BSE Sensex topping 40,000 level for the first time, and the NSE Nifty 50 index also surpassing 12,000 as leads indicated a decisive victory for the Narendra Modi-led NDA government.
However, profit booking in noon trading saw the benchmark indices giving up some of their gains. The Sensex was up 171 points or 0.4 per cent at 39,281.58 in afternoon trades. The Nifty 50 was at 11,792.65, up 55 points or 0.5 per cent.
“Based on the leads it is evident that NDA is coming back with likely single majority for BJP. Valuation wise Nifty at 12,000 trades at 19 times on forward price to equity basis. Hence we see limited upside potential in the Nifty in the near future,” said Rusmik Oza, head of fundamental research at Kotak Securities.
Beyond the election results, there are issues that will concern investors, more importantly the slowing economy and continued trade tensions between the US and China.
Given the high valuations and the slowing demand, stocks of consumer-facing companies could see some selling pressure, says Oza. On the other hand, midcap and smallcap stocks, which saw a huge sell off last year, could see more upside now.
“With NDA coming back into power we can expect local investors to take comfort in the mid and small cap space with a longer 2-3 year horizon and inflows could resume in them,” said Oza.
Sectors such as construction, capital goods and corporate banks are likely to gain some traction over the next one year, analysts feel.
On Thursday, the major gainers included IndusInd Bank and Yes Bank were among the biggest gainers, surging more than 4 per cent. Other major gainers included Larsen & Toubro, State Bank of India, ICICI Bank, Bharti Airtel and Hero MotoCorp, which were up 2-3 per cent. On the other hand, ITC, Vedanta, HDFC Bank, TCS and Tata Motors were down 1-2 per cent.