Nifty 50 Index Expected to Gain Amid Election Year: CLSA Analysis

India's benchmark Nifty 50 index is poised for growth in the coming months, according to a recent note from CLSA analysts. Historical data suggests that the Nifty typically performs well during election years, providing a positive outlook for investors as the 2024 general election results approach.

Current Market Performance

At the beginning of this week, the Nifty reached a record high of 23,110.80 points. However, it experienced a sharp decline and was trading around 22,488.65 points by Friday.

This volatility is largely attributed to the anticipation surrounding the 2024 general election results, scheduled to be announced on June 4.

Election Impact and Investor Sentiment

The Indian stock market has been particularly sensitive to election outcomes. No exit polls were allowed before the conclusion of voting on June 1, but pre-election opinion polls had predicted another victory for the incumbent Bharatiya Janata Party (BJP) and its allies.

Investors generally favor the BJP's pro-business policies, which have included substantial support for the manufacturing sector and increased infrastructure spending. Over the past two years, the Nifty has outperformed many of its global peers, reflecting the robust growth of the Indian economy.

Historical Election Year Performance

CLSA analysts highlighted that since 1991, the Nifty has historically delivered average returns of over 25% during election years. This positive trend provides a strong foundation for the current year's expectations.

Despite the Nifty breaking out of its May-March trading range this week, a daily momentum indicator for the index suggested some lagging performance as the election results approach.

Price Set-Up and Forecast

The current price set-up for the Nifty mirrors the situation observed before the 2019 elections. Following a resounding BJP victory, the Nifty saw a sharp rise but experienced a correction of at least 10% a few weeks later.

Nonetheless, it continued to rally towards the year-end. Based on this pattern, CLSA analysts recommend taking profits around 23,745 to 23,750 points, anticipating a similar consolidation post the 2024 election results.

Resistance Levels and Sectoral Recommendations

CLSA analysts have identified the next resistance levels for the Nifty at approximately 23,100, 23,745-23,750, and 24,000 points.

Regarding sectoral positioning, they advise investors to focus on the infrastructure sector over the consumption sector, expecting stronger performance in infrastructure due to ongoing and anticipated projects.

Conclusion

As the 2024 general election results loom, the Nifty 50 index's historical election year performance suggests a favorable outcome for investors.

While some volatility and consolidation are expected, the overall trend indicates potential gains. Investors are advised to watch key resistance levels and consider strategic sectoral investments to maximize their returns.