With the exit polls projecting a majority for the Prime Minister Narendra Modi-led BJP and 350-plus seats for NDA alliance, a handful of brokerages believe foreign portfolio investors would soon join Atmanirbhar Bharat -- the stock market that is being supported by domestic investors and mutual funds, pushing new set of stocks higher.
"Traders and foreign institutional investors (FII), which had trimmed their positions ahead of elections, would look to go long, bolstering markets during this week. FII are largely Neutral to Underweight across sectors barring financials and consumer staples," Elara Securities said in a note.
The brokerage said with likely third term for Prime Minister Narendra Modi-led NDA, domestic and global investors are anticipating an aggressive reforms agenda that can catapult India into the next orbit of growth. It noted that the Indian market is re trading at a premium to all Emerging Market (EM) peers, especially heavyweights, such as China & South Korea, and to its historical past.
"Forward earnings do not justify these valuations, especially in sectors that are linked to government policy actions, such as defense, railways, and power. Earnings need to catch up so that after the initial celebration of the election results, markets can potentially see profit-booking. Further upside in repeat names looks unlikely, as fundamentals are not in sync with the stock prices," it said.
Nomura India said a favorable outcome that suggests policy continuity should drive inflows from FIIs. It noted that the FII flows have been negative in FY25, adding that the FII holding in India have declined to 15.6 per cent against 19.8 per cent pre-Covid levels.
"The analysis done by our regional equity strategist Chetan Seth suggests that the allocation to India by foreign investors is light at the moment. We think investors are concerned about the uncertainty related to the Indian general elections. Domestic flows have remained sticky. Any adverse changes in equity taxation is a risk for the market in the near term," it said.
This brokerage has a December 2024 Nifty target of 24,860, based on 20 times estimated December 2025 EPS. "We are constructive on domestic sectors. We prefer manufacturing/investment theme over consumption," it said.
"We are Overweight (OW) on financials, infrastructure, oil and gas, telecom, power, capital goods/defense (up from Underweight [UW]) and Internet (up from UW)," it said.
Kotak Securities said a large BJP victory may sustain rich-to-bubble multiples in parts of the market (automobiles, capital goods, PSUs) for longer, but it would be surprised if many of the lofty embedded expectations come to fruition.