Expecting a BJP Victory? Which Stocks do You have in Your Watchlist?

The great Indian national election, with all its high-octane drama, is finally here.

As of this writing, the first phase, 1 out of 7, of the 2024 general election, will be held tomorrow, 19 April. This will also be the biggest pf the seven phases with 102 out of 543 seats up for grabs. So, it's safe to say that the elections will begin with a bang.

All the various polling dates have been announced. Candidate names for nearly all the constituencies are out. Political parties have released their manifestos. The country is fully in poll mode.

But what about the stock market? Does election season affect sentiment and its trajectory?

Well, the simple answer is yes it does, in the short term. But once the elections are done, history tells us that the stock market continues on its merry way.

Of course, there are exceptions when the results are in complete contrast to market expectations. The most famous example of this was 2004 when the incumbent NDA government was voted out. The markets crashed back then.

The fear at that time was that the new UPA government with communist parties as alliance partners, could reverse business-friendly policies.

These fears were unfounded. The stock market entered a long, record-breaking bull run which only ended in January 2008.

Could a similar bull market happen this time around as well?

The expectation this time is for the Modi government to return to power again. If this expectation is belied, then there could be a correction in the market.

However, even if this happens, it's likely to be short-lived considering what has happened in the past.

We at Equitymaster believe that long-term investors have nothing to worry about.

A Stock Watchlist if Modi Returns

Most Indian investors are convinced that the BJP will come back to power for another term. So, to identify the stocks that could benefit during Modi 3.0, it makes sense to look at what happened over the last 10 years.

During the previous two terms of the Modi government, India witnessed a massive surge in government capital expenditure. The government funded the construction of roads, railways bridges, ports, airports, power projects, water distribution schemes and other infrastructure.

This boosted the Indian economy along with investor sentiment. Many companies benefitted from this capex cycle.

Also, the policies drafted by the government towards making India a manufacturing hub, especially the PLI schemes, were beneficial for many listed stocks. Favourable government policies and high demand could further fuel the growth for these companies.

This time around, we can get hints from the BJP's manifesto about which stocks could benefit over the next 5 years. These stocks should be on your watchlist.

Before we get to specific stocks it's important to remember that past performance doesn't guarantee future returns. You must study the fundamentals and valuations of these stocks with caution.

Do thorough research before considering these stocks as potential buys. And remember to invest for the long term so as to potentially maximise your returns as well as reduce the impact of market volatility on your portfolio.

#1 HUDCO

The BJP has promised to push affordable housing even further in its third term. This could make HUDCO a key beneficiary.

Housing & Urban Development Corporation (HUDCO) is a public limited company (Government of India undertaking). The company is primarily engaged in the business of financing housing and urban development activities in the country.

Over the years, HUDCO has played a significant role in the implementation of its various initiatives in urban infrastructure and social housing projects. Being majorly owned by the centre, the company receives support in terms of board representation and access to low-cost funds.

In 2023, HUDCO has received multiple rating upgrades from agencies on the back of its robust credit profile and strong government support.

It has a low credit risk as 97% of its outstanding loans are to state governments and their related entities, which come with guarantees. The government owns 75.2% in the company.

Given the company's rising exposure to urban infrastructure, in line with the government's increased focus towards infrastructure development, the stage is perfectly setting up for HUDCO, which sanctions loans under various infrastructure schemes.

HUDCO also rewards shareholders consistently by making large dividend payouts. It's dividend payout ratio in FY23 was 45.3%.

While growth has remained stagnant for the past three years, the company could see improvement in full year numbers given government's focus on housing infra.

For more details, check out HUDCO's factsheet and quarterly results.

#2 Ultratech Cement

The BJP's promise to continue its infrastructure push is a big positive for India's biggest cement company, Ultratech Cement.

It's a part of the Aditya Birla group and has operations that span across India. The company is operating at a total capacity of 133 MT and employs about 23,000 people.

In the past 5 years, Ultratech Cement has expanded its capacity from 94.5 MT in 2019 to 133 MT at present. The company has been adding capacity, organically and inorganically, acquiring 3 companies in the last 5 years.

In fact, over the past decade, it has grown ahead of other cement firms. It has a market share of around 25% in India.

Ultratech Cement aims to expand its current capacity of 133 MT to 157.4 MT by FY 2025 and enhance it further to 175 MT by FY 2027

Ultratech Cement's operations in India are well-diversified, with the north accounting for 19.9%, south 15.4%, west 23.1%, central 21.3%, and east 20.3% of sales. So, for some reason, if the market in one part of the country doesn't perform well, the profits from the other markets can help mitigate that.

It also has a presence in countries such as UAE, Bahrain, Bangladesh, and Sri Lanka. This exposure to different markets bodes well for a cement company, diversifying its business.

Demand growth for the cement sector is driven by housing, infrastructure, commercial and industrial segments, backed by continuous policy and investment support from the government. Policies like Performance Linked Incentive (PLI) schemes has aided the growth of the industrial sector.

For more details, check out Ultratech Cement's factsheet and quarterly results.

#3 Indian Hotels

The BJP has promised to give a big boost to the travel and tourism sector with the goal of creating employment. The most direct beneficiary would be Indian Hotels.

The Indian Hotels Company is primarily engaged in the business of owning, operating & managing hotels, palaces, and resorts. When discussing hotels in India, it's impossible not to acknowledge the impact of this company.

The company operates its hotels under four main brands catering to different segments: Taj (luxury), Vivanta (upscale), and Ginger (mid-market).

Within the hotels sector, Indian Hotel has a firm grasp on the market and the homegrown Tata brand of course helps a lot.

Indian Hotels recently embarked on a big growth trajectory by opening 40 hotels in a five year period between 2017-22. This made it one of the fastest growing hospitality chains in India.

Going forward, the company has adopted an asset light model of operation which involves balancing a 50-50 portfolio of owned hotels versus management contract hotels.

For more details, check out Indian Hotels' factsheet and quarterly results.

#4 Titagarh Rail Systems

The BJP has promised to make India into a leading global railway manufacturing hub. The biggest beneficiary of such a policy should be Titagarh Rail Systems.

The company is the largest supplier of wagons to Indian Railways. It manufactures freight wagons, passenger coaches, metro trains, train electricals, steel castings, specialised equipment, bridges, and ships.

Titagarh Rail Systems has four manufacturing facilities in India, through which it caters to the domestic and export markets.

The company is firing on all cylinders in 2024. It's sitting on a record high order book of Rs 28 bn. This is primarily due to the high inflow of orders driven by continuous investment in capex to increase its capacity and upgrade its plant to improve efficiency.

In the last five years, Titagarh Rail Systems clocked a compound annual growth rate (CAGR) of 12.3% and the earnings before interest tax depreciation and amortisation (EBITDA) has grown at a CAGR of 32%. The profit after tax for Titagarh Rail Systems grew at a CAGR of 21%.

This is because the company undertook plant upgradation, which improved productivity and efficiency as well as decreased the cost of production.

Additionally, faster order execution and the company's continued focus on cost rationalisation have helped it double profits in the last five years. This also resulted in the expansion of profit margins.

When the introduction of Vande Bharat trains was announced, Titagarh Rail Systems saw an opportunity and bagged orders for these trains.

Moreover, it bagged its first metro rail project in 2019 and currently has orders from Surat Metro, Ahmedabad Metro, and Pune Metro projects.

A higher influx of orders from the modern railways and faster execution led to a higher increase in the revenue of Titagarh Rail Systems.

For more details, check out Titagarh Rail Systems' factsheet and quarterly results.

#5 Tata Motors

The BJP has promised to make India energy independent by 2047. To this end the mass adoption on electric mobility is a priority. The biggest beneficiary of this policy will be Tata Motors.

Tata Motors Limited is a leading global automobile manufacturer with a portfolio that covers a wide range of cars, SUVs, buses, trucks, pickups, and defence vehicles. It's a US$ 34 bn organisation and a leading global automobile manufacturing company.

Tata Motors is one of India's largest OEMs. It offers an extensive range of e-mobility solutions.

Recently the management announced plans to split the passenger and commercial vehicle (CV) businesses into two listed companies.

The CV business and related investments will be housed in one entity, while the other will include passenger cars, electric vehicles, and Jaguar Land Rover.

The demerger proposal, which will be presented to the board of directors in the coming months and subject to necessary regulatory and shareholder approvals, will be completed in 12-15 months.

The shares of the company will be split in a 1:1 ratio. Shareholders of Tata Motors will continue to have an identical shareholding in both the listed entities, and it'll be business as usual post-demerger.

Tata Motors has lined up US$ 2 bn to be invested by 2026 to launch 10 new EVs, including the Curvv, Harrier EV, Sierra EV, and the Avinya.

In addition, the company is setting up an ecosystem that will build everything from batteries and charging stations to financing vehicles and finally putting them on the road. No other automaker in India can currently counter that proposition.

For more details, see Tata Motors' factsheet and quarterly results.

#6 Welspun Corp

The BJP has promised to expand the programme of providing piped natural gas to households to all major towns and cities. The biggest beneficiary of this policy would be Welspun Corp.

Welspun Corp is part of the Welspun Group and a big manufacturer of state-of-the-art pipes and related niche products.

The company was incorporated in 1995 and since then has supplied pipes for some of the most prestigious projects including the world's deepest pipeline project in the Gulf of Mexico USA.

Welspun's state-of-the-art plants are located in Dahej and Anjar in Gujarat.

The company is a leading manufacturer of large diameter pipes globally offering a one-stop solution for all line pipe related requirements with its wide range of high-grade line pipes.

While the recent performance has been good, one must note that the order book for the company is susceptible to crude prices, as oil and gas players are its major clients.

For such businesses, ability to withstand downcycles with strong reserves and liquidity, and low debt balance sheet is critical.

For more details, check out Welspun Corp's factsheet and quarterly results.

#7 Divis Laboratories

The BJP has promised to position India as the pharmacy of the world by boosting both manufacturing and research capacities of the sector, especially in APIs.

To this end, research linked incentives are likely to be expanded. A very big beneficiary of this policy would be Divis Laboratories.

Divis Labs manufactures APIs, custom synthetics of APIs, intermediates, and nutraceutical ingredients.

It has a wide product portfolio of over 160 products across various therapeutical areas including anti-depressants, anti-Parkinson, Analgesic, neuropathic pain, anti-inflammatory, anti-viral, and anti-psychotic. The company majorly exports its products to the USA, Europe, and Asia.

With a strong team of over 400 scientists, the company focuses on continuous product development and process innovation to improve efficiency.

In the last five years, the revenue of Divis Laboratories revenue grew at a CAGR of 9.4%. Divis Laboratories' revenue majorly grew on the back of high demand for COVID-19 drugs. However, post-pandemic, the company witnessed a slowdown in revenue growth.

The earnings before interest tax depreciation and amortisation (EBITDA) of Divis Laboratories witnessed a growth of 4.8% and net profit grew at 6.2%, both on a 5-year CAGR basis. Profit growth was supported by backward integration and debottlenecking projects.

The profit margins contracted in the last five years on account of high raw material prices. However, going forward, with raw material prices softening, and the company's active cost cutting initiatives the margins are expected improve in the medium term.

The company has consistently paid high dividends to its shareholders. Moreover, it also increased its dividend per share over the years. Its five-year average dividend payout is 31.9%.

Being one of the largest API manufacturers in the world for 10 of the generic APIs manufactured, Divi's has laid out several growth plans. It's investing to build a third manufacturing capacity to cater to the growing demand for generic APIs.

It's also investing in new technologies that could help the company develop new products. Apart from this, the company is focusing on expanding its global reach to reduce its customer concentration.

To know more, check out Divis Laboratories' factsheet and quarterly results.

#8 Dabur

The BJP has made major promises towards improving rural incomes and livelihoods. This would result in higher purchasing power for rural households. Thus, the FMCG sector stands to gain. One of the biggest beneficiaries would be Dabur.

Dabur, an FMCG giant with a well-established household name for over 139 years, is one of the most prolific names in the Indian market.

The company engages in the production of Ayurvedic medicines and natural products, and now they are a multinational brand that is present in more than 120 countries around the world.

Using organic, ayurvedic components to manufacture various products is Dabur's unique selling point (USP). Dabur is globally acclaimed company for its ayurvedic and natural health care products. It has over 250 products in its product portfolio.

From tasty 'Hajmola' to bitter yet effective 'Sudarshan Ghanvati' medicine to trusted 'Chyawanprash', Dabur has many products where it has left a strong impression.

Dabur's ayurvedic products are sold all over the world. It eight international manufacturing locations and 13 state of the art manufacturing plants in India.

Among the overseas markets, it has the highest sale in the middle east countries. It also sells its products in Europe, America, Africa, and other Asian countries.

To know more, check out Dabur's factsheet and quarterly results.

Conclusion

We at Equitymaster, believe the bull market is not under threat due to election results and long-term investors have nothing to worry about. It's just that, in the short-term, there could be some volatility.

Investors would do well to invest in high quality stocks for the long term, no matter what happens on result day.

The best approach would be to separate your focus. The election results and the market's movements are not corelated 1:1. That's just the wrong way to think about stock prices.

It's important to delink your thought process about the stock market and whatever could affect it, like elections, with your personal stock portfolio. Think of them as separate entities.

Consider investing in a group of stocks which are fundamentally strong, and are also indifferent to the 2024 elections.

These stocks are dependent more on the broader long term India growth story and are not related in any major way to the popular themes of the Modi government.

If the Modi government does not return to power and the market falls, then these stocks may not fall much because they were not related to any of the major themes.

But if the Modi government does return to power and the bull run continues then these stocks may also do well on account of their fundamental strength and their reasonable valuations.

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...