Themes investors can play on UP election results

Consequent to the stunning victory of the ruling party at the Centre in the state of UP, many retail investors are wondering how to capitalise on this development in the stock markets. Since the UP state sends the largest number of members to Lok Sabha (also to Rajya Sabha), this event along with results of many other states gives us some confidence on continuing political stability in the next term of Lok Sabha also. This government, without any majority support in the Rajya Sabha (which was mandatory), successfully passed the Insurance Bill and also cleared all major hurdles for the passage of Goods and Services Tax. It has also made a bold move on demonetization - though it didn't bring in desired results, it shows the government's willingness to take some political risks for the sake of major economic initiatives.

The election results of UP state, perhaps, gives us a possibility of a long-term bull run in the stock markets for the next 5 to 7 years on the hope of both continued political stability for a much longer period and many more courageous initiatives on the economic front from the government. This, in turn, could lead to a lot more new set of retail investors entering the capital markets and also listing of lot more companies on the stocks exchanges. This would be a big game changer for the Indian corporate in terms of cheap financing and therefore, for the development of the industrial economy in the long-term.

In the short-term, one can think of infrastructure, the aviation sector and mid-sized non-strategic PSUs (public sector undertakings) as the possible gainers in the stock markets. The present government has already spoken a lot about increasing the penetration of airline industry in smaller cities by developing smaller airports and also through some incentives. India's aviation passenger traffic is the fastest growing one in the world. Recently the government announced the strategic sale of its equity stake in the mid-sized PSUs (like BEML, Dredging Corporation, etc), which are not part of strategic importance to the country. There are many more such PSUs with rich assets and we can expect many of them being put out for a strategic sale. Since the industrial economy is not growing significantly and the overall GDP growth has also come down, it is likely that the government will also take some serious steps to mobilise resources for the development of infrastructure.

However, this political event will not increase the corporate earnings or the GDP growth in the short-term. Hence, the investors should carefully choose these three thematic stocks without losing the valuation comforts.