Elections and Investments: How Are They Connected? | IT Sector's Q2 Earnings: Muted Outlook | Top Stocks for Long-Term Holding

In this week's edition, we decode the profound impact of elections on stock markets, offer an exclusive preview of the IT sector's performance, and unveil the top stocks primed for a winning buy-and-hold strategy.

Here's what's more:

1. Top World Cup Stocks to Watch Out For
2. What is Piotroski score? How to use it in stock picking?
3. Week Ahead for Markets: What to Expect?

Investor Vs Elections

Valuable Insights From History

Disciplined investors triumph as the ultimate winners

History

• Consistent Market Performance: Regardless of election outcomes, the market has consistently delivered returns exceeding 12% over the subsequent three to five years, highlighting its resilience and growth potential. The highest returns were observed between 2004 and 2009, when neither the BJP nor Congress held a majority.
• Institutional Flows: Historical data shows that Foreign Portfolio Investment (FPI) inflows tend to exhibit a positive response in the period leading up to and following general elections.
• MF Impact: Long-term SIP investors reaped the rewards due to their unwavering commitment. Even the underperforming funds yielded returns exceeding 9% in most cases. The leading performer within the core equities segment achieved returns surpassing 20%.

Learnings:

• Macro Indicators Prevail: Domestic and global macroeconomic indicators exert a more substantial and enduring influence on the markets than election results alone. Factors like economic fundamentals, corporate performance, global events, monetary policies, and geopolitics play pivotal roles.
• Balancing Short-Term Volatility: While elections can introduce short-term volatility and sentiment fluctuations, it’s essential to focus on the bigger picture, emphasizing a resilient, well-rounded investment approach.

Lok Sabha Election Details & Results

Opinion polls suggest a comfortable victory for the BJP

History: The majority was only observed in the last two general elections starting from 1996.

Expectation 204 Elections: Summary of 2 Opinion Polls

Election Impact on the Mutual Funds

Disciplined investors emerge as the true winners. Even the bottom performers delivered more than 9% in most of the cases.

A 10-year SIP of Rs. 10,000 initiated 6 months before the election.

Election Impact on the FPI Flows

Typically, FII inflows tend to be robust during election years.

FPI flows as % of market cap:

A Muted Season: IT Sector's Q2 Earnings Outlook

The Indian IT sector, known for its strong adaptability to economic conditions, has embarked on yet another challenging second quarter of FY24. It's a sector that thrived during the COVID-19 pandemic, as the world raced to digitize, leading to soaring earnings and order books. However, after the initial surge, demand has softened, primarily due to a slowdown in the Western markets. Additionally, a workforce demand-supply mismatch has exacerbated the situation, causing high attrition rates and rising employee salaries that erode profitability.

TCS, which touched a 52W high on 9th October, will kickstart the Q2 earnings season on October 11, followed by Infosys and HCL Tech on October 12. This came after the company announced on Friday (Oct 6) that it will consider a proposal to buyback equity shares on October 11, 2023.

Global Economic Woes

The Indian IT industry is grappling with uncertain demand due to economic concerns in the US and Europe, its primary markets. While there's hope that demand will improve in the future, economists at BNP Paribas predict a mild US recession, with inflation gradually stabilizing. Indicators like US IIP growth recovery and improving US PMI provide some optimism- however, any recovery will be slow.

Impact on Decision-Making

Many IT companies report delays in decision-making due to increased caution in the uncertain economic climate. This caution is particularly evident in short-term transformation deals.

Deals Offer Hope

A source of optimism for IT companies is a strong deal pipeline, including mega-deals focusing on cost-cutting and consolidation. These deals, like those of TCS with Georgia Department of Labour JLR, Liberty Global, Danske deals by Infosys, and Verizon, Siemens, and ANZ deals by HCL Tech, are driving hope for the future. Additionally, increased spending on AI and cloud migration is expected to boost medium-term growth.

Projections

Here are Bloomberg’s projections for the heavyweights:

For TCS, Infosys, and HCL Tech, the focus will be on the demand environment and the signs of recovery in the second half of FY24. Infosys will also be watched for changes in leadership, and HCL Tech will provide insights into its strategy under the new CEO and margin recovery.

Margins and What to Expect

TCS, Infosys, and HCL Tech may see slight margin growth due to better efficiency. On the other hand, LTIMindtree and Tech Mahindra may experience margin reductions due to various factors. Wipro's margins are also expected to decrease due to lower revenue.

In the longer run, Industry insiders are optimistic about the latter half of the year, with the final quarter holding the promise of better days for the sector. Despite the persistent challenges, there's a sense that the worst is behind us. As the global situation stabilizes and clients regain confidence, the Indian IT sector is poised for a resurgence.

Here is the full list of companies set to announce their Q2 results this week:

1. October 11 (Monday): Delta Corporation, Plastiblends India, Samhi Hotels, SignatureGlobal India, Tata Consultancy Services, and Zaggle Prepaid Ocean Services.
2. October 12: Anand Rathi Wealth, Angel One, HCL Technologies, Infosys, JTL Industries, Kesoram Industries, Sterling and Wilson Renewable Energy, and Tata Metaliks.
3. October 13: Aditya Birla Money, HDFC Life Insurance Company, and Tata Steel Long Products.
4. October 14: Avenue Supermarts
5. October 15: KSolves India

Up your finance quotient: What else needs your attention?

1) Top Stocks for Buy-And-Hold Strategy

In this video, we delve deep into the buy-and-hold investment strategy—a proven path to long-term success in the stock market. Discover the wisdom of investing legends like Warren Buffett and Radhakishan Damani as we explore how to make savvy stock choices, maintain unwavering discipline, and tap into the incredible benefits of compounding for your investment portfolio.

2) Piotroski score and its importance

Every investor wants to include the best stocks in their portfolio. However, with a seemingly endless line of options, how do you choose? If you could rank your target stocks based on a standard checklist to check their quality, the process of selecting stocks would be quite simple. In that case, have you heard of the Piotroski score? Check out this blog to know the meaning of the Piotroski score and how it can help you shape your portfolio.

3) Top World Cup Stocks

Over the next 45 days, 48 exciting matches will captivate fans across the nation. With cricket being India's favorite sport, we're already seeing the buzz, including rising flight and hotel prices.

The Big Show:

📌 The 13th Cricket World Cup features 10 teams and 48 matches in 45 days.

📌 In 2019, the tournament attracted 750 million viewers.

📌 Back in 2011, when India last hosted, a whopping 12 lakh fans attended the matches, with an average of 25,000 per game.

Impact on Spending:

📌 An overall increase in spending is expected but some sectors may win big while others may take a hit.

📌 PVR Inox, Wonderla, Imagicaaworld, Shoppers Stop, Trent, Aditya Birla Fashion, etc. may take the hit as footfalls could decline given half of the weekend days have India matches.

📌 In contrast, food delivery, quick commerce, drinks, media, and online gaming are likely to thrive.

BCCI's Phenomenal Growth:

📌 The Indian Premier League (IPL) has fueled cricket's growth, boosting the BCCI's revenue to an incredible $800 million in FY23.

📌 The BCCI now makes as much money as all other full-member countries combined and twice as much as the ICC itself.

Rising Travel Costs:

📌On India match days, hotel and flight prices have soared by an average of 150-80% compared to the week before.

📌 Some rates have gone as high as 13x-5x their usual prices.

📌 Smaller cities like Dharamsala have no hotel rooms available for several days due to high demand from players, staff, officials, media, and fans.

📌 Airlines are looking to add more flights to handle the surge in travellers, ensuring a successful Q3 for the hospitality industry.

Week Ahead for Markets: What to Expect?

1) Corporate Earnings: The corporate earnings season for the July-September period FY24 will be kicked off by IT majors next week, with TCS releasing the scorecard on October 11.

2) Economic Data: Apart from earnings, the market participants will keep an eye on CPI inflation for September releasing on October 12. The CPI inflation, an important data point for the MPC, is expected to cool down further due to falling vegetable prices and cut in LPG price. In addition, industrial output data for August will also be announced on October 12, while the WPI inflation & balance of trade data for September month, and foreign exchange reserves for week ended October 6 will be released on October 13.

3) FOMC, US Inflation: Globally investors will look for cues from the FOMC minutes for the September policy meeting releasing on October 11 and US inflation which is scheduled on October 12, while the speech by several Fed officials during the next week will also be watched.

4) Global Economic Data: