Ashwini Agarwal On BJP Win & Its Impact On Markets

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As #BJP wins 3-0 in Hindi heartland, #DemeterAdvisors' Ashwini Agarwal shares outlook on markets along with themes that may do well ahead of general #elections. #BQLive

Transcript

00:00 The market is out and the markets are going to be happy if the GIFT Nifty and the SJX

00:06 Nifty are to be believed.

00:07 But suffice to say, they will have a good start.

00:09 The question is, can we build on from there?

00:11 Is this the shot in the arm that equity markets wanted, which were anyways doing very well,

00:15 by the way, I must say, around 9%, 10% rally since October 26th?

00:19 Ashwini Agarwal joins in right now with his thoughts.

00:23 Ashwini, thanks so much for taking the time out.

00:26 This will have a pop-up start for sure.

00:28 Will we build on from there?

00:30 Thank you, Neeraj.

00:32 Thank you for having me here.

00:34 My sense is that a bad loss for BJP was never the base case for the markets anyway.

00:42 So yes, this is a marginal positive surprise in the sense that the margin of win in both

00:48 Rajasthan and Madhya Pradesh is much larger than what the exit polls were indicating.

00:54 And Chhattisgarh is a positive surprise.

00:56 So to that extent, the comfort that the Hindi belt is fully in support of the BJP government

01:03 removes any lingering doubts that people might have had on the 2024 general election.

01:10 So to that extent, it's a marginal positive.

01:14 But like I said, it was never the base case that BJP was going to lose badly in the state

01:21 elections.

01:22 It was never the case that BJP was going to lose in the general elections in 2024.

01:27 It was a kind of worry at the back of everyone's mind, but not a significant up and central

01:34 worry in any case.

01:36 So while we'll see a pop-up, and the pop-up also has to do with what happened in the US

01:41 on Friday and various economic data releases that we've been seeing, I don't know whether

01:48 the outcome of the state elections is the only reason why the pop-up will sustain.

01:54 And lastly, we've often said that the state elections are not a reflection of what happens

01:59 at the central in terms of election outcomes.

02:03 So again, it should not be the reason for the market to go up firmly from here.

02:08 There will be other reasons, but yeah, this is a tailwind at best.

02:12 Ashwini, just wondering though, and I know I have about four or five minutes with you,

02:17 so I'll make it quick, but a lot of global money was sitting on the sidelines saying

02:21 that what if 2024 is a big event?

02:23 I mean, Chris Woods knows that there could be a 25% correction if BJP doesn't come back

02:28 to power, so on and so forth, various such instances.

02:31 Because this has been such a resounding victory in the Hindi heartland, where in 2018, they

02:35 didn't have as much of a sway, would global money, which at the margin can take a little

02:41 bit of a risk, want to take that risk in the next six months with a pre-emptive move that

02:47 now it seems more or less certain that the current dispensation will continue?

02:54 I don't have a very good answer to that, Neeraj, because I'm just trying to replay what happened

03:00 in 2014 and then again in 2019.

03:03 If you recall, 2014, there was a strong run-up to the elections and after the elections,

03:10 actually, the market did nothing.

03:11 But the starting point at that time was the bottom of the taper tantrums and valuations

03:17 were very attractive.

03:19 At this point in time, the valuation support is a little bit missing.

03:23 So I think, while at the margin, some people might have been worried about political instability

03:29 post-2024, I really don't think that was the base case anyway.

03:34 But I think the reason why foreign investors have been reluctant is because of valuations.

03:39 Now, I think a more enduring reason for foreigners to step in might just be that earnings growth

03:47 is turning out to be a little bit better than what we were forecasting.

03:51 If you look at the GST data for the month of November, auto sales data for the month

03:54 of November, I think the real economy is doing well.

03:58 And rural India, which was kind of lagging, has also started to participate if two-wheeler

04:04 sales are anything to go by.

04:06 So I think the economic strength might be the reason why you see an improvement in foreign

04:13 flows, as indeed you have seen in the month of November.

04:17 But I think the doing away of worries on the 2024 elections may act as an additional favorable

04:25 point.

04:26 But I think the weight of that additional point would be quite low, in my personal opinion.

04:31 Okay, Ashwini, I've read a bunch of notes this morning with some believing, sell-side

04:38 essentially, with some believing that the stocks or the sectors which haven't done as

04:43 well thus far, and you include BFSI there, maybe include staples there because there

04:48 will be a focus on rural because rural is hurting at the margin, or for the matter,

04:52 two-wheelers when the numbers have started to come, I heard you say that as well.

04:56 So there are some notes which are saying that that's where our focus is.

04:59 And there are some which are saying that they believe that this continuity would mean that

05:03 money which was reluctant of chasing themes like defense, railways, infrastructure, CAPEX,

05:13 where in the government or PLI, where in the government has shown intent to back up with

05:17 capital, will now see even more flows simply because the money would want to believe that

05:24 there will not be a major hindrance to the schemes for the next five years.

05:28 How would you look at either of these arguments?

05:32 Interesting arguments both.

05:34 So I like the BFSI space mostly on the banking side, but less on the NBFC side.

05:41 And I think that the rating should happen for reasons other than elections, because

05:48 I think the earnings momentum, the health of the economy, loans growth, etc., everything

05:52 is kicking in.

05:53 Policy certainty, which would be the base case for the second camp, is obviously a good

06:01 thing for corporate investment, which, by the way, has been lagging expectations till

06:06 now.

06:07 And it is a positive for defense and infrastructure and various other businesses, which are heavily

06:13 dependent upon government policy outcomes.

06:15 So that obviously is a positive.

06:17 But I think a lot of that is baked into the valuation.

06:19 So in the second piece, I would have been very worried if there were a big question

06:25 mark on the return of this administration post-2024.

06:30 But with that worry having gone away, I think, yes, you can expect continuation of policy.

06:35 But that's already baked into the prices in my view, because valuations in the sectors

06:40 you mentioned, railway, defense-related, etc., pretty challenging to start with.

06:45 So I'm more of the opinion that it's going to be a little bit of the same as before.

06:53 The state election outcome in terms of sectors, in terms of ideas, more bottom-up.

06:57 I don't think it's very sector-specific, more sector-agnostic.

07:01 That's at least how I think and look at it.

07:04 More bottom-up opportunities is what I'm thinking.

07:07 Got it.

07:08 Well, it reflects in your answers all through this conversation, Ashwini.

07:11 Thank you so much for taking the time out and being with us and giving us your thoughts.

07:14 Really appreciate your time.

07:15 Thank you, Nilesh.

07:16 Thanks.

07:17 Have a nice day.

07:18 Thank you.

07:19 And viewers, thanks for tuning in.

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