India’s elections are around the corner with the date to be announced soon and India’s next government a few months away. Yet, these political tumbles certainly have their effect on the equity market. Reading the tea leaves always gives some indications of how markets move during this tumultuous period.

There are definite data points and trends that investors can look at to chart out their equity map during India’s moves in the elections.

“Irrespective of election outcome, markets have delivered double digit returns during the election year,” says Feroze Azeez, Deputy CEO, Anand Rathi Wealth.

Analysts note that in the six month period in the run-up to the elections markets have always seen an upside and this rally has continued in most cases, post favourable results.

“Such rallies in anticipation of the election results are normal and we have seen such pre-election rallies in the last five elections,” says Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

“In India, general elections act as one of the key triggers which significantly impacts the market volatility based on news inflows, sentiment changes and results of pre-poll surveys. It is that lighthouse event which could possibly navigate the markets for next five years as it may alter the course of policy decision making, infrastructure project announcement, budgetary allocations, etc,” wrote Shriram Way2Wealth in a Research Note on the 2024 General Election picks.

But, let us come down to brass-tacks. After all, we in the equity markets must know how to benefit and why and how.

With nearly 2/3rd of the population residing in the rural part of the country, an attempt to win rural votes would certainly lead to an infusion of liquidity into rural economies on account of higher spending by all political parties.

This would be a significant catalyst to stimulate rural consumption demand which has been missing for the last few quarters on account of below average monsoon, El-Nino impact, suppressed agri commodity prices, and elevated inflation.

Resultantly, rural focused pockets such as FMCG, tractor and agri-equipment manufacturers may remain on investor’s watch list.

Additionally, an important sector to watch is the agrochemical sector which may react positively if the government announces a large fertiliser subsidy keeping in view a large agriculture based vote bank ahead of the elections.

Some industries usually benefit out of a temporary demand spurt during the election period.

One such key industry is the travelling sector as a large population of the country travels back to its native place to cast a vote and also this coincides with the summer times when tourism picks up.

Media industry also remains in focus as political parties make use of this platform to reach a larger audience base thus boosting ad revenues.

Additionally, companies involved in event management, print and digital media campaigns also remain investor’s favourite for generating trading gains.

“Thus, cumulatively general election provides ample opportunities for investors to create wealth and companies mentioned in the list could be the potential beneficiaries from short to mid-term perspective,” wrote Shriram Way2Wealth in their research note.

“High spending during electioneering can boost consumption by lifting consumer stocks,” says Vijayakumar.

Volatility too is normally predictable, but this time around there may be bouts of volatility in the markets triggered by negative news.

Within the overall equity universe, Vijayakumar feels that the investor should look at large caps as the mid cap and small cap companies are excessively priced.

And, of course, there is the old go-by when you are investing into the equity markets – SIPs (Systematic Investment Plans).

“SIPs should be continued as it is,” says Azeez. An investor can utilise every fluctuation of 10% as a buying opportunity if you have lumpsum available. However, this does not require you to change your investment strategy.

Maintain your asset allocation, market cap allocation at all times and rebalance if required.

“Investors should consider investing in funds from diversified categories while maintaining a market cap allocation 50:20:30 in large cap, mid cap and small cap,” says Azeez.

But finally, do remember that the elections are just an event and must sway your investment decisions.

“We do not suggest investors plan their portfolios based on events,” says Azeez. Investors when exploring the bourses should define their horizon of investing based on which they will define their goals, risk appetite etc. One of the fundamental steps in financial planning is defining short-term and long-term goals. By setting goals after understanding their risk and return appetite, investors can align their financial decisions and start small via SIPs.

The primary objective at all-time should be to generate real return by beating inflation.

“Choose asset classes such as debt and equity which have low correlation. E.g., debt and equity have a low correlation and portfolio mix with the combination of these two can help one ride volatility,” explains Azeez.

Sectors that may benefit due to the elections

Power and Green Energy – Budget have made these sectors attractive. 1 crore households will get up to 300 units of electricity every month with rooftop solarisation. There is a key focus to strengthen the e-vehicle ecosystem by supporting manufacturing and charging infrastructure.

Apart from this the sector has seen run ups in the recent past and experiencing recency bias as well.

Auto – This sector has performed well in the recent past and mostly the performance is earnings growth driven.

Valuation multiples have come down depicting that this sector may hold great potential.

Healthcare – The Indian pharma and health sectors‘ growth hinges on value-driven research, global supply chain integration, and equitable access.

The Indian pharmaceutical industry aspires to reach the milestones of US$130 billion by 2030 and US$450 billion by 2047 as part of the India@100 vision.

This upward trajectory will be propelled by the industry’s commitment to innovation, integration with the global pharmaceutical landscape, and access to integrated healthcare.

IT – IT has modest earnings growth potential and the valuations are reasonable at the moment.

Finance excluding banks – Valuation numbers are strong and asset quality deterioration is lower than expected making it attractive at the moment, as per Anand Rathi Wealth.

Manik Kumar Malakar is a personal finance writer.