BJP election win, stock market: Defence, CG, power shares may do well if NDA retains power

Defence, capital goods (CG), industrials and power shares may do well if the BJP-led NDA comes to power for the third straight term. A weaker BJP mandate may, on the other hand, lead to more spending on consumption and lower income households that broader markets may not like, UBS said in a note. Such a scenario, the foreign brokerage said, could help consumption-led sectors perform relatively well.  

While UBS expects a BJP retaining single majority ie over 272 seats as its base case, any unexpected outcome will likely be perceived negatively at least at first, due to political instability and possible policy paralysis weighing on business sentiment and impacting investor confidence. 

"This could trigger knee-jerk reactions in financial markets in the near term, with equity valuations possibly testing pre-NDA levels," it said.

Prabhudas Lilladher expects continuation of policy if the NDA comes back to power. It sees themes around infrastructure, defence, capital goods, new energy and tourism to do well. 

"Consumer, two-wheeler and tractors can get a boost from green shoots in rural demand and expectations of normal monsoons," it said.

Nomura India expects positive market reaction particularly if NDA gets close to 400 seats. Domestic sectors such as financials, consumer discretionary, infrastructure and PSUs may outperform in such a scenario. IT services and healthcare are seen underperforming in such a case.

If BJP falls short of majority but still forms government with its NDA allies, Nomura expects a sell off in highly valued domestic oriented sectors particularly industrials, infrastructure, PSUs. It expects banking, consumption, pharmaceutical to outperform in such a scenario.

Meanwhile, if INDIA coilation comes to power, Nomura expects a selloff across domestic oriented sectors particularly financials, industrial/infrastructure, consumer discretionary, PSUs. 

"Consumer staples, IT services and pharmaceuticals are likely to outperform," it said.