3 Kinds of Stocks that Will Benefit from Upcoming 2024 Elections

The general elections are just a few months away. Although the dates haven't been announced yet, it's close enough, to be measured in weeks instead of months.

Political parties will blow the poll bugle soon. There will be a wave of promises, assurances, accusations and counter accusations, claims and counter claims, opinion polls, and debates (both civilised and otherwise).

Political pundits will attempt to read the political tea leaves and make predictions, both at the national and the state levels.

A record number of Indians will cast their ballot to elect their representatives in parliament. The election will make international headlines, there's no doubt about that. India is the world's biggest democracy after all.

However, a segment of the Indian population will be interested in the election for another reason. These are the investors and traders in the stock market.

The general elections in India have always played a big role in deciding sentiment in the market. This may be for right or wrong reasons but the fact can't be denied.

Most people who have put their hard-earned money in stocks either as investment or speculation, will be interested in knowing how the elections will impact the market.

Which stocks or sectors will rise in anticipation of the results? Which ones will be on the back foot?

In this editorial, we examine the stocks likely to benefit from the 2024 general elections.

#1 Railway Stocks

This is one sector in the market that is one fire. And for good reason.

The government is spending an unprecedented amount of money on railway modernisation and capacity upgradation.

This spending is so vital for the country that the result of the election is not likely to change it in a meaningful way.

And if, as expected, the current government returns to power, the railway boom will continue. This is because there is a lot more that needs to be done in terms of investments over the long term to make the Indian Railways truly world class.

However, investors should not get carried away with this. Most railway stocks are trading at record highs or close to it. Some of these stocks are hitting 20% upper circuits with each order win from the government. There is massive speculation in these stocks.

As they say, 'Buyer Beware'.

To know more about the reasons behind this boom and how specific railway stock is impacted, read our editorial on the topic - Why Railway Stocks are Rising.

Also read - The Great Indian Railway Boom is Here: 5 Stocks to Watch.

#2 Defence Stocks

This is another no-brainer. Defence stocks have been in the spotlight for quite some time.

Ever since border tensions with China erupted in 2020, these stocks have become investor favourites.

The government's spending on defence has increased so much that India is now the third biggest spender on defence.

The increased spending along with many necessary rule changes and a focus on indigenous procurement, has given a massive boost to the entire sector over the last three years. Companies across the defence ecosystem have done benefited.

As geopolitical risks continue to rise around the world, defence stocks will be in focus. Any weakening of the Modi government's mandate could be seen as a negative for these stocks.

On the other hand, if the current government returns to power, expect the rally in these stocks to continue. As long as the orders from the armed forces keep coming in, defence stocks will remain one of the favourites of the Indian investor.

Here are a few relevant articles we've published on defence stocks.

• Mazagaon Dock vs Cochin Shipyard
• New All-Time High for 6 Defence Stocks. Should You Invest?
• 5 Defence Stocks to Watch Out in Nifty’s Run to 40,000
• Defence Stocks: All Your Question Answered

#3 Alcohol Stocks

In a non-election year, the first half of the calendar year is not a bullish phase for alcohol firms. All the festivals and occasions for partying are mostly in the second half.

But during elections these stocks come into focus for obvious reasons.

Now we are not saying these stocks are going to rise solely because of the elections. But this has happened before.

However, there are fundamental reasons to be bullish about these stocks too.

Equitymaster's editor, Richa Agarwal, wrote about this in a recent Profit Hunter editorial...

• Now the liquor industry has its own challenges. It is highly regulated. There are quotas, controlled pricing, and rules about production, taxes, licenses, and so on.
  
  So, is there a way to ride this trend and minimise these risks?
  
  The answer lies in the supply chain.
  
  Whether you are a teetotaller or a connoisseur, one thing we all agree on is the aesthetic appeal of glass liquor bottles.
  
  Not only for aesthetics, but glass also remains a preferred packaging material as it is non-reactive unlike plastic.
  
  The point is, when you see a particular sector growing, try to look beyond direct players. Sometimes, the real riches in the gold rush lie with pick and shovel stocks.

Read Richa's editorial here.

#4 An Honourable Mention: Manufacturing

The government is determined to boost manufacturing by simplifying regulations and creating incentives via PLI schemes. The goal is to create jobs as well as increase India's GDP growth.

This focus in unlikely to change after the elections no matter the composition of Parliament or the party in power. India's manufacturing megatrend is here to stay.

Thus, it makes sense for investors to look for high quality companies, that are not only benefiting from government incentives but also doing well on their own. Thus, they won't be impacted badly if certain incentives were to be reduced.

There are many listed stocks that fulfil these criteria. However, valuations are a concern. The bull market has made these stocks pricey.

Investors looking to benefit from this long-term theme would do well to be extremely selective and give due importance to the valuations of the manufacturing stocks they are considering for investment.

So there you go... various kinds of stocks that could benefit from the upcoming elections.

You can also check out the video version of this editorial on Equitymaster's YouTube channel.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...