Kotak Institutional Equities in its latest strategy noted said that most 'narrative' stocks could not sustain pre-election gains post 2014 and 2019 Lok Sabha elections. Most of the top-performing stocks were cyclicals and ‘narrative’ stocks and only a handful of 2014 outperformers lived up to Street expectations, Kotak noted adding that election rallies offer limited-period opportunities in ‘narrative’ stocks.
"A large section of them (2014 pre-election gainers) lost value over time," it noted. This was also the case with 2019 elections where most outperformers of the pre-election rally saw a severe sell-off post polls. Defensives shares outperformed the market during the period, it said.
In 2019, shares of SpiceJet climbed 67 per cent in three months to elections. It was up a mere 2 per cent three months post elections. Orient Cement was up 61 per cent in three months to elections but was down 27 per cent in the three months post elections. DCM Shriram (up 60 per cent pre-election, down 36 per cent post-election), Indiabulls Real Estate (pre-election 56 per cent, post election down 43 per cent) and PC Jeweller (up 52 per cent pre-elections, down 73 per cent post elections.
In 2014, NCC India surged 189 per cent in three months to elections. It was down 6 per cent in three months post elections. Adani Enterprises Ltd shares were up 147 per cent in three months to elections; the stock was down 9 per cent post elections. Jaiprakash Associates, GVK Power & Infrastructure, Indiabulls Real Estate, IVRCL and DCM Shriram are some other rallying stocks of 2019 elections that fell in the post-election period.
"We would caution against using any ‘conclusions’ from previous pre- and post-election market and stock price movements to draw inferences for pre-and post-market movements over the next few months," it said.
Kotak said valuations today are much higher currently versus in the pre-2014 and pre-2019 election periods, which would suggest the market’s extremely high confidence about a ‘favourable’ result outcome (NDA victory) and forceful post-election policies; more clarity will emerge over the next few days once the BJP’s election manifesto becomes available, it said.