Despite the election-led volatility, Japanese brokerage Nomura kept its portfolio unchanged on expectations of political continuity. The brokerage projected that the frontline index Nifty 50 could breach 24,860 by the end of 2024.

Following the election outcome, the domestic markets crashed six percent as investors liquidated their holdings.

Concerns regarding political and policy stability, which could impact foreign and domestic flows, caused traders to flee to the relative safety of defensive sectors like IT, pharma, and FMCG as sectors relating to favorable government policies, such as PSU and defense stocks, were in a downward trajectory.

However, Nomura said: "Through the course of the past week, we think the concerns have abated. The composition of the cabinet over the weekend also indicates policy continuity at the moment."

Nomura said it remains highly stock-specific in its portfolio. Among sectors, the brokerage is constructive on domestic sectors, such as manufacturing or investment themes over consumption.

Unlike scores of market experts who suggested that a sectoral rotation was taking place, with investors moving to FMCG counters, Nomura said it prefers IT services and healthcare firms over consumption players.

In its portfolio, Nomura is currently overweight on financials, infrastructure, oil and gas, telecom, and power, where a correction should present a buying opportunity in its view. These sectors also include PSUs, where Nomura has remained positive.

"We are also positive on capital goods/defense but will watch out for some risk on government spending on defense. Assuming policy continuity, stable macros, and sustained earnings growth, we are positive on equities," said the brokerage.

Eyes on Union Budget 

The next set of cues for the domestic markets will be found in the full Union Budget, which will be presented in early July 2024.

"The budget is likely to highlight the policy direction, which we expect to remain largely unchanged. The government is likely to pursue fiscal consolidation and prioritize investments/capital expenditure," said the Japanese brokering firm.

In this view, Nomura differs from certain experts, who predict that the Centre, as a result of a coalition government, will take a more welfare-oriented policy stance, instead of a growth-oriented policy standing.

As a result of the cabinet formation, with 61 percent of current ministers part of the earlier cabinet as well, Nomura sees a sense of policy continuity. As a result, it expects the government to continue to prioritize macro stability and invest in the supply side. The emphasis on infrastructure build and domestic manufacturing is likely to be sustained.