The Delhi state election results should be an incremental positive for the stock market, as it allays any residual concerns over stability and smooth functioning of the coalition government at the Centre, MOFSL said in its latest note.
The Bhartiya Janata Party (BJP) registered an impressive victory in Delhi, winning 48 seats out of 70 seats, after a gap of 27 years. MOFSL attributed the win to the poll promise of “double-engine” governance, Prime Minister Narendra Modi’s campaign, and a two-term anti-incumbency undercurrent against the ruling Aam Aadmi Party.
"The verdict was broadly in line with the exit polls, even though AAP, heading into the elections, was seen to have an edge over BJP. Numerically, the city-state of Delhi is small (it sends 7 out of 543 Lok Sabha MPs), but as the nation’s capital, it attracts a disproportionate share of electorate attention," MOFSL noted.
MOFSL noted that the BJP win came despite no big local face. It said 'Brand Modi' is regaining its lustre.
"Politically, the Delhi victory will be seen as a decisive revival of Brand Modi. A victory here is a sign of revival in voters’ trust reposed in Brand Modi and the likely developmental benefit that can accrue to Delhi due to the same party governing both the state and the Centre," MOFSL said.
The brokerage believes that the market will take the Delhi verdict positively, as it provides further impetus to the policy momentum and helps allay residual concerns, if any, over the stability of the coalition government at the Center.
"With the Budget now behind and the RBI providing monetary relief, this verdict will lift sentiment at the margin. However, attention will now shift back to earnings, corporate guidance and global macros amid turbulence in global markets on US President Donald Trump’s trade policies," MOFSL said.
The brokerage recommended a largecap heavy-portfolio owing to valuation differentials against smallcaps and midscaps (SMIDs).
It said Nifty50 is trading at 19.8 times, 4 per cent below its LPA, on a 12-month forward basis, while the Nifty Midcap 100 is at 30 times -- 50 per cent premium to the Nifty50. In the case of Nifty Smallcap 100, the index at 22 times is trading 13 per cent premium over the Nifty50.
"Thus, valuations remain elevated for broader markets, while they are slightly below the average for the Nifty50. We remain cautious on sectors where valuations have substantially exceeded past earnings growth," MOFSL said.
Since the Lok Sabha 2024 verdict, the BJP has recovered much of the lost ground as it delivered unexpected victories in Haryana (October 2024), Maharashtra with partners (November 2024) and now Delhi, which was expected to be a tight two-way battle.
"BJP won 48 seats (out of 70 seats in Delhi), a strong jump from 8 seats in 2020. Its vote share surged by 8 per cent to 46 per cent, while AAP saw a dip in vote share from 54 per cent to 44 per cent. The third key party, Congress, failed to win any seats (same as 2015/2020) even though it was able to bump up its vote share from 4 per cent to 6 per cent," MOFSL said.
The broking firm said three back-to-back victories in Haryana, Maharashtra and Delhi will lend confidence and provide more policy momentum for the NDA government, allowing it enough headroom to modulate policy responses as per the economic needs of the hour.
"This verdict should further help allay concerns over the coalition politics at the Centre as BJP has re-emerged stronger, while Congress, the nucleus of the opposition INDIA bloc, has been ceding ground as it lost massively in Haryana, Maharashtra, and Delhi. It did win the smaller state of Jharkhand/J&K, but it was mainly due to alliance partners JMM’s/JKNC’s heft in the respective states," it said.
MOFSL said consumption has emerged as a key theme that can do well as households realign expenses toward more consumption on the back of tax savings. A broad swathe of sub-segments of consumption could be key beneficiaries, namely, discretionary, retail, jewelry, hotels, apparels, 2W, entry-level 4W, and also capital market plays to some extent. We recommend a selective approach toward Industrials.
Among largecap stocks, MOFSL likes Titan Company Ltd, M&M, Maruti Suzuki India Ltd, ICICI Bank Ltd, State Bank of India (SBI) and HCL Technologies Ltd. It also likes Bharti Airtel, L&T, Sun Pharma, Trent, HUL and Dixon Tech.
Among midcaps and smallcaps, it prefers Indian Hotels, Page, Cummins India, BSE, Godrej Properties, Coforge, Metro Brands, IPCA Labs, Angel One, and JSW Infrastructure.