Power Your Portfolio: 5 Sector & Thematic Funds to Consider Around General Elections

March 22, 2024 Mutual Fund

General elections are a pivotal moment for any nation, shaping its economic course for years to come. The Indian General Elections of 2024 are on the horizon, and with them comes a period of heightened economic activity and policy focus.

Political parties unveil their manifestos outlining their vision for the nation’s future, often prioritising specific sectors for development.

As investors, this period can be unsettling due to potential market volatility. However, it also presents a unique opportunity for investors seeking to capitalise on the potential growth of these sectors.

The Prime Minister Modi-led NDA Government, in its two terms of governance from 2014 to 2024, has accelerated the implementation of several structural reforms, such as Made in India, which aims to boost Indian manufacturing, the Production-Linked Incentive Schemes, Startup India, and Digital India, which promote innovation and entrepreneurship and build an increasingly digitally empowered India.

Online banking, investing platforms, and UPI (Unified Payment Interface) are examples of fintech solutions that have taken the BFSI industry to new heights. Their emphasis on building essential infrastructure-roads, trains, ports, and other means of transportation-to increase connectivity helped the infrastructure sector. RERA (a quasi-judicial body regulating builders and developers) was introduced in 2016 to enhance the transparency of the real estate sector.

[Read: Do General Elections Matter for the Indian Equity Markets]

However, the opposition parties have raised concerns by releasing a Black Paper alleging how the decade-long rule under the present government distressed the economy, affected the agriculture sector, caused a price rise due to high inflation, weak Indian Rupee (INR), sluggish GDP growth and high debt-to-GDP, etc.

Having said that, do note general elections are more than just a change in leadership. They represent a shift in national priorities, potentially impacting various industries and sectors. This can trigger fluctuations in the stock market. Although markets and sectors move cyclically, however identifying the right sector at the right time can be challenging.

Remember, not all sectors or industries perform the same in a bullish or bearish market. Additionally, with the upcoming Lok Sabha Election 2024, this year is an excellent opportunity for investors to generate significant returns. India is now seen as a ‘bright spot’ in the world economy, a viable place to invest, and one that has increased investor’s wealth over the past ten years.

India’s general elections can significantly impact various sectors and industries, though the effect can be short-term or long-term, depending on the outcome. A stable government focused on economic reforms often leads to a market upswing; conversely, a hung parliament or unexpected results can cause market dips.

[Read: The Indian Equity Market: A Symphony of Economic Melodies]

The 2019 elections, where BJP retained power, resulted in a short-term market dip during the election period. However, post-results, the market recovered due to expectations of policy continuity and economic reforms. These likely benefitted sectors aligned with the government’s agenda, like infrastructure and manufacturing.

By aligning your portfolio with sectors poised to benefit from the upcoming elections, you can potentially capitalise on this period of change.

This article explores five potential sectors and themes that one may consider in the lead-up to and aftermath of the 2024 General Elections. By understanding the government’s potential priorities and aligning your investments accordingly, you can position yourself as an investor to benefit from the nation’s growth trajectory.

1. Infrastructure Sector: Building a Stronger India

Infrastructure development has been a consistent focus area across various political administrations in India. With a growing population and urbanisation, the need for robust infrastructure is paramount. This includes investments in roads, bridges, railways, airports, and ports.

The government’s focus on infrastructure development could be a boon for construction materials, engineering services, and logistics companies. As per the Union Budget for FY 2024-25, the government hikes infrastructure capex for the fourth year to Rs 11.1 trillion.

[Read: Top 5 Mutual Funds Paving the Way to Wealth with Indian Road & Highway Stocks]

India’s Infrastructure is growing to keep pace with its developing economy. This means there’s a constant need for investment in new projects and upgrades to existing ones. By investing in infrastructure funds, you are essentially betting on this long-term growth trend. Infrastructure funds may help you diversify your portfolio beyond traditional stocks and bonds.

However, it’s important to be aware of the risks involved before investing, Infrastructure funds are considered to be sectoral funds, which means the portfolio concentration can lead to higher risk than diversified equity funds.

2. Defence Sector: Securing the Nation’s Future

National security is another crucial area that receives significant attention during elections. Political parties often pledge to modernise the armed forces and invest in indigenous defence production. This can translate into opportunities for aerospace and defence equipment manufacturing, shipbuilding, and defence electronics companies.

One of the top picks for strong sectors for the Lok Sabha Election 2024 is Defence, as the Indian government has been allocating large sums of money to grow India’s overall defence sector. Not just this year but for the past couple of years, the Ministry of Defence has received high capital allocation to make India’s defence sector stronger.

[Read: 6 Equity Mutual Funds to Benefit from India’s Defence Sector]

So, currently, investing in the defence sector can be a good opportunity to ride the strong momentum. The Indian government is prioritising indigenous defence manufacturing and reducing reliance on imports.

Defence stocks performed well in 2023, investing in mutual funds focused on the Indian defence sector could be an interesting option in 2024. However, many defence sector mutual funds are relatively new. They might have a limited track record, making it difficult to assess their long-term performance, thus, one must do their own research before investing.

3. Power & Renewable Energy Sector: A Sustainable Path Forward

The need for clean and reliable energy is a growing concern globally. India’s energy needs are rising, and the government is prioritising renewable sources like solar and wind to meet those demands while reducing reliance on fossil fuels. This focus is expected to continue in 2024, potentially leading to increased investment and growth in the sector.

The Indian government has ambitious plans for renewable energy adoption. This creates investment opportunities for companies involved in solar, wind, and hydropower generation and battery storage solutions. The renewable energy sector has historically shown strong growth, with some companies experiencing significant returns in the past year.

In the Interim budget 2024, the government announced ‘PM Suryodaya Yojana 2024’ to curb the dependency on burning fossil fuels for generating electricity. Hence, the power sector may become one of the best sectors for Lok Sabha Election 2024 which you can invest in.

[Read: Investing in India’s Electrifying Future: Top 5 Power & Energy Sector Mutual Funds]

By investing in renewable energy, you’re not just potentially making money, you’re also contributing to a more sustainable future for India it is suitable for environmentally conscious investors.

Bear in mind it’s important to weigh the risks and do your research before investing. The power and renewable energy sector focused mutual funds, while promising, may also be volatile in the short term; look for funds with strong performance track records.

4. Banking & Financials Sector: Empowering the Economy

The banking and financial sector (BFSI) is considered to be the backbone of the economy as it plays a vital role in driving economic growth and is one of the core sectors in the market. The government’s focus on financial inclusion and digitalisation can benefit companies involved in retail banking, microfinance, and digital payments.

Additionally, infrastructure projects and increased economic activity can lead to higher loan demand, boosting the banking sector’s overall performance. Within banking & financials, segments like insurance and wealth management are expected to see significant growth due to rising disposable income and technological advancements.

[Read: Mutual Funds Are Betting Big on These Sectors: Are You Missing Out?]

While banking sector funds haven’t performed stellar so far in 2024, some experts believe they’re currently undervalued compared to their future earnings potential. Additionally, a stable and efficient financial system also fosters confidence among investors and consumers, underpinning overall economic stability and prosperity.

India’s Current Account Deficit (CAD) has narrowed down to 1% of GDP which makes banking and finance a potential sector to invest in. A lower CAD suggests that the country is importing fewer goods and services relative to its exports, which can contribute to greater stability in the economy.

The stock market can be volatile, and banking & financials are no exception. Be prepared for potential short-term dips. Before investing, research different banking & financials mutual funds and their holdings, make sure your investment strategy aligns with your risk tolerance.

5. Tourism & Hospitality Sector: Unlocking India’s Potential

The Indian tourism and hospitality industry is expected to be one of the fastest growing in the country. The sector is a significant contributor to the Indian economy, generating employment and foreign exchange. With increased disposable incomes and a growing middle class, domestic tourism is expected to flourish.

Foreign Direct Investment (FDI) in the hospitality sector is on the rise due to India’s economic growth and favourable government policies. This increased investment translates to more jobs, improved infrastructure, and potentially more profits for companies in the sector.

[Read: Diversify Your Portfolio with Hospitality & Tourism Stocks: Top 5 Mutual Funds]

India boasts a rich cultural heritage and diverse landscapes, making it an attractive tourist destination. Government initiatives to promote tourism are likely to further increase tourist arrivals, positively impacting the hospitality sector.

Like any investment, tourism and hospitality stocks come with risks. Economic downturns or unexpected events can significantly impact travel and hospitality spending. However, incoherence with a well-diversified portfolio and proper research is crucial before making any investment decisions.

Do note, that past performance is not necessarily indicative of future results. While these sectors may benefit from increased government focus, thorough research of individual sector-oriented funds and companies within them is crucial.

To conclude…

India’s GDP is more than 3 trillion dollars; ten years ago, it was just 1.9 trillion dollars. Now, we are preparing to become the third-largest economy in the world, with a GDP of USD 5 trillion in the next three years and a target of USD 7 trillion by 2030.

The 2024 General Elections can present a window of opportunity for investors to align their portfolios with the nation’s growth trajectory. While these sectors offer promising opportunities around the elections, don’t lose sight of your overall financial goals and risk tolerance.

By incorporating these themes into a well-diversified portfolio, you can potentially capitalise on election-driven trends while safeguarding your investments for the long haul.

This article first appeared on PersonalFN here