5 Stocks to Benefit from the Upcoming 2024 General Elections

If you ask me, stock market investors come in two types.

The first type, under which vast majority of the investors fall, use the most basic, surface level thinking. Their reasoning doesn't go deep enough.

Let me give you an example.

If asked to select a group of 5 stocks that could benefit from the upcoming 2024 elections, they will try to make it very simple.

First, they will assume that Prime Minister Modi will be voted back to power and then they will zero in on 5 stocks that are likely to benefit from the BJP returning to power.

These stocks would mostly be based on the Modi Government's popular themes like 'Aatmanirbhar Bharat', 'Make in India', 'Namo Bharat', 'Bharat Mala etc.

Stocks that are the direct beneficiaries of these themes would be bought after paying some attention to their fundamentals.

This is the basic, surface level thinking that I was talking about and something that most investors would deploy.

There is a problem with this approach though. You see, most of the other investors will choose stocks based exactly on this same line of reasoning. Hence, you don't have any special edge in choosing your stocks. And where there is no edge, there are no extra returns.

If Modi comes to power again, his themes will no doubt do well. However, I am not sure if the stocks based on these themes will do well in the medium term as most of the upside seems to be already priced into their current share price.

This is the problem with basic, first level thinking. Majority of the investors are also thinking along the same lines and hence, one cannot earn market beating returns thinking this way.

Hence, in order to have a strong chance of earning market beating or good long-term returns, one must be the second kind of investor. This investor does not believe in surface level thinking. He believes in diving a lot deeper.

His reasoning will proceed along the following lines: If most of the investors are thinking that Modi will return to power and are investing in stocks based on his favourite themes, then these stocks may have already become expensive.

And one cannot earn good, market beating returns by investing in stocks that are already expensive. Earning market beating returns therefore will require a different category of stocks. It will require a deeper level of thinking.

How about choosing a group of 5 stocks that will benefit the most in the event of Modi not returning to power? Hmm.......this could be tricky. With the way things are going, the probability of Modi not winning a third term is quite low indeed. Hence, choosing 5 stocks based on this assumption is definitely fraught with risks.

How about selecting a group of stocks which are fundamentally strong but are indifferent to the 2024 elections? In other words, stocks that are dependent more on the broader long term India growth story and are not directly related in any major way to the popular themes of the Modi government.

If Modi Government does not return to power and if the market falls then these stocks may not fall much because they were not related to any of the major themes. But if Modi does indeed return to power and if the bull run continues then these stocks may also do well on account of their fundamental strength and their reasonable valuations.

If you are onboard with this idea then here are the 5 stocks that we believe investors would do well to keep on their watchlist in view of the 2024 elections.

These have been shortlisted based on a slightly deeper level thinking and are not the obvious names that most investors would have in mind.

#1 Maruti Suzuki Ltd.

India's largest car manufacturer has underperformed in the stock market in recent years... this is well known. What came as a surprise recently is that for the first time in seven years, Tata Motors has gone ahead of Maruti Suzuki in the market cap race.

At the peak of the Covid crash, Maruti Suzuki was nearly 6x more valued than Tata Motors. That the Tata Group company has managed to turn the tables around speaks volumes not just about its turnaround but also about the underperformance of Maruti Suzuki.

So much so that Maruti Suzuki now trades at a PE multiple that's considerably lower than its 10-year average.

However, you can never underestimate India's largest car maker. It is getting battle ready with 8 new launches being planned over the next 4 years and with most of it being in the red-hot SUV space.

Hence, this is one stock that you can certainly keep an eye out for.

#2 Whirlpool of India Ltd.

Run a list of stocks that have underperformed in the last 3 years and Whirlpool of India ltd sticks out like a sore thumb. The stock is down almost 50% over the last 3 years as intense competition and shrinking margins took toll on its profitability.

However, it is very much capable of making a comeback given its established position in the refrigerator and washing machine segments, which together account for a majority of the company's revenues.

As its ratings report points out, the company has maintained its market share, backed by its strong brand, established distribution network, new product launches, investment in R&D and potential demand in Tier 2 and Tier 3 cities.

Given these strengths, there is a strong chance that a turnaround is not far away and so is a place for this stock on your watchlist.

#3 ITC Ltd.

All I can say about this Indian behemoth is that the valuations are still attractive from a medium to long term perspective. The stock is trading at a PE of 27x, slightly lower than its long term average of 28x-30x. In other words, it is not egregiously overpriced like its other FMCG peers.

Besides, the fundamentals are also not that bad. In fact, what has made the shareholders happy is the impending demerger of the hotels division.

60% of the ownership will be transferred to ITC shareholders while ITC will continue to hold 40% in this demerged entity.

Exiting or demerging the hotels business was a longstanding demand from ITC shareholders. It was gobbling up a lot of capital on account of its capital-intensive nature.

Now that the demerger has finally happened, the company will have more cash to spare which can be used to either pay more dividends or invest in something more productive.

As far as earnings growth is concerned, I believe that the company is quite capable of achieving a growth of 15% per annum in earnings over the medium term.

And this combined with the dividend yield of around 3%, puts the stock in a good position to earn more than decent returns for its investors.

#4 HDFC Bank

Again, a stock that has fallen on hard times but possesses excellent long-term fundamentals and is independent of whichever party comes to power.

When the quarterly results of the bank came out last month, the street was not too happy with it. Amongst other things, the main bone of contention was the loan to deposit ratio of 110% post the merger. The management has acknowledged the need for it to decline.

It stated that the ratio would trend lower over the next several quarters and further stated that deposit growth must be 3-4% higher than the loan growth to bring down loan to deposit ratio. As of now, sequential deposits growth of 1.9% materially lags loan growth of 4.9%.

Not withstanding this minor blip, the bank's strong franchise, the huge synergies post the merger and the long runway for growth, makes it a good stock to keep on your watchlist.

#5 Redington Ltd.

Rounding off the list is Redington Ltd, a proxy to growth of Apple phones in India.

Yes, that's correct. Warren Buffett's biggest investment i.e. Apple has two key distributors in India - Ingram Micro and Redington India.

Redington is, therefore, a proxy to Apple's growth prospects in India over the coming decade.

Post pandemic, Apple has chosen to move a majority of its production facility from China to India. Also, its subsidiary Foxconn has committed more capital to India based capex. This bodes well for Redington given Apple's long-term plans for India.

The company currently derives almost 30% of its revenue from sale of Apple's devices. However, Redington certainly cannot rely on Apple alone for its future. Hence has already started reducing its dependence on the smartphone major.

With a high level of expertise in the IT, telecom, home appliances and consumer electronics sectors, the company has evolved from a distributor to a value-added supply chain company.

What further works in the company's favour are the reasonable valuations and a strong balance sheet. Hence, with more levers for growth firmly in space, the stock does make a worthy addition to your Election 2024 watchlist.

In Conclusion

So, there you are... 5 stocks that you need to keep an eye on from a 2024 perspective.

As I mentioned earlier, I deliberately chose to de-link these stocks from the 2024 elections as I believe that most of the stocks that will benefit from the third possible term for Modi, are already trading at elevated levels.

Hence, choosing stocks that are independent of elections and that are trading at inexpensive valuations, should be the way to go.

The only connection these stocks have with 2024 elections is that the continuation of the bull market should also see these stocks post good returns post the 2024 elections provided their fundamentals don't deteriorate a great deal. Therefore, you would do well to keep these stocks on your watchlist.

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...