MOFSL in its latest note said the staggering victory of the ruling BJP-led NDA alliance in Maharashtra should bring the undercurrents back in the markets. The brokerage noted that Maharashtra had seen political instability in the last five years, with frequent musical chairs at work for the Chief Minister (CM) post. Largecap valuations look reasonable and a mini risk-on rally seems likely, it said.
"This decisive verdict ends the chronic instability in one of India’s most industrialised and economically important states. Moreover, the BJP’s strong performance (won 132 seats; majority mark 145) will ensure stability in the governance and bring renewed focus on infra development," the brokerage said.
MOFSL said the magnitude of victory is unprecedented in many sense - a vote share of 50 per cent for the winning alliance -- a huge gap of 15 per cent against opposition’s vote share of 35 per cent, with comprehensive victory across all six regions of Maharashtra. NDA won 70-87 per cent of seats in all regions, barring Mumbai, where it won 64 per cent of seats. MOFSL noted.
"An unprecedented 91 per cent hit rate for the BJP (won 132 out of the 145 seats it contested). The second-largest party in the NDA is Shiv Sena (Shinde), which won 57 seats, 10 more than the combined tally of the entire opposition alliance. First time in six decades in Maharashtra, an opposition party has failed to secure 10 per cent of seats which is a pre-requisite for appointing a Leader of Opposition in the assembly," it noted.
MOFSL said the NDA has also done well in UP's by-polls, having won won 7 of 9 seats), in Rajasthan (6 of 7 seats), Assam (5 of 5 seats), and Bihar (4 of 4 seats. The INDIA alliance, on the other hand, won six of six seats in West Bengal and three of three seats in Karnataka.
Brand Modi
"Politically, this verdict will strengthen the BRAND MODI after a small setback in the Lok Sabha 2024 elections. Winning a big state like Maharashtra in such a dominating fashion indicates some strategic course correction by NDA. It will also stall the momentum of the INDIA alliance, which was gaining ground after the Lok Sabha elections. It will also have repercussions on the intra-alliance dynamics and brainpower of different constituents of the INDIA alliance," MOFSL said.
From a policy perspective, the results of both Maharashtra and Jharkhand elections highlight the role of women-oriented welfare schemes, and to that extent, create concerns about the potential policy choices that the incumbent state governments going into polls in the near future (Delhi, Bihar in 2025) will be tempted to adopt.
"This can have an important bearing on the fiscal health of state governments and potentially shift the spending away from the more productive capital investments toward the less productive but instantly gratifying welfare/subsidy spending," MOFSL said.
Nifty outlook
MOFSL said the market has seen a decent correction in the last two months, with the Nifty, Nifty Midcap 100 and Nifty Smallcap 100 falling 9 per cent each on the back of moderate corporate earnings in H1FY25, relentless FII selling since October, a fragile geopolitical backdrop, and a strengthening dollar index after the victory of Donald Trump in the US election.
The anxiety around Maharashtra elections had further muddied the waters, it noted.
"With elections now behind and the BJP getting a strong boost from Haryana and Maharashtra elections, we expect the government to now focus on spending. This poll result, coupled with a recovery in rural spending should improve the demand narrative at the margin. The wedding season in 2HFY25 will also provide a fillip to demand," it said.
The brokerage expects a modest recovery in corporate earnings in H2FY25, with Nifty earnings expected to grow 7 per cent in H2 against 4 per cent in H1FY25.
"The change in sentiment can initiate a mini risk-on rally, in our view. Given the recent correction, we believe valuations, especially for largecaps, are quite reasonable now at 19.3 times FY26E EPS. Midcaps and smallcaps are still trading at expensive valuations, with NSE Midcap 100/NSE Smallcap 100 trading at a P/E of 30x/23x. The volatile geopolitical backdrop and movement in dollar index will be the near term monitorables," it said.
Stock ideas
Among largecap stocks, MOFSL prefers Mahindra & Mahindra Ltd, State Bank of India (SBI), Larsen & Tourbo Ltd (L&T), Indian Hotels Ltd, ABB Ltd, Dixon and Bharti Airtel Ltd. Besides, it likes Trent Ltd, Hindalco Ltd, Titan Company Ltd and HCL Technologies Ltd.
Among midcap stocks, it likes Angel One, BSE, Amber Enterprises, IPCA, Cummins, Page Industries, Godrej Properties, Coforge, JSW Energy, and Gravita.