Even as BJP’s BS Yeddyurappa resigns as Karnataka’s Chief Minister ahead of the floor test, analysts and experts alike say that if the BJP fails to form government in the state, a correction is likely. “If the BJP were to win the floor test markets are likely to move sideways and make an attempt to consolidate. However, if the BJP were to lose then the sharp correction that is underway is likely to gather momentum,” Ajay Bodke of Prabhudas Lilladher told FE Online. A CLSA report said that the BJPs test to form government in the state remains elusive.
According to the firm, BJP has regained some political momentum by becoming the single largest party in the state. CLSA said that the central and state government’s stance may become more pro-rural, given the impending national elections in 2019. Possible freebies will mean that the country’s macros maybe under pressure, the report said. However, the stock markets will eventually shift its focus back to fundamentals, said CLSA.
According to Bodke, Indian markets are right now more focused on the adverse fallout of surging global crude oil prices on India’s macroeconomic fundamentals and slow take-off in corporate earnings. So, amid this tense environment, where should they invest? “Investors are advised to stick to companies with stable, steady and visible earnings growth in sectors such as retail-focussed private banks, FMCG, retail and automobiles,” Ajay Bodke, CEO and Chief Portfolio Manager PMS Prabhudas Lilladher told FE Online.
According to the expert, investors need to tread with caution in sectors such as aviation, logistics, OMCs and tyres. “Although a falling rupee and expectation of strong near-term demand has propelled many mid-cap IT companies to new highs their valuations appear stretched. Headwinds in pharma sector would continue to cap the upside. Corporate focused banks would continue to reel under high provisioning requirements for at least 2 more quarters and are best avoided” he told FE Online.