Less than three weeks from now, we would know the outcome of the state elections, which could swing the markets either way. It would also provide some inkling (now always accurately) on whether the NDA would return to power or there would be a new government in place.
However, it maybe time to move into defensive stocks or stocks that provide a degree of comfort, because of their dividend track record. Here are a few stocks that could provide a limited risk, in case the markets are volatile.
Dividend yielding stocks
One can also look at dividend yielding stocks like Coal India, NMDC and REC. Interestingly, all of these are government owned companies. In fact, Coal India and NMDC have both fallen to 52-week lows, as investors have dumped metal stocks on fears of a slow down in global demand.
All commodity stocks, including the likes of metal and mining companies have seen their share prices crash.
Pertintently, stocks like Coal India, now offer a decent dividend yield of near 7 to 7.5 per cent, which is almost like bank deposits. NMDC offers a lower dividend yield of 4.5 per cent. Downside risk in a stocks like Coal India is limited because of the dividend yields.
Of course, the added advantage of dividends is that they are tax free up to dividends of Rs 10 lakhs per year.
The larger, Multi National names like Hindustan Unilever could be a good defensive bet. Apart from this, one could also bet on solid home grown consumer names like ITC and Britannia.
It is unlikely that these stocks would fall a great deal in case there is an adverse election outcome. One would also be tempted to recommend pharma, but, the way the rupee has jumped against the dollar, it would not be advisable to do so.
Counting for the state elections is slated for Dec 11, while the exit polls would be a few days earlier, and could throw some light on the outcome. However, exit polls are not always very accurate.
At this stage, it would be good to avoid the cyclicals and banking stocks.
What you should buy in case you believe it is "Advantage NDA"?
In the next six months, it is also likely that the elections to the Union Government would also be complete. In such a case, if you believe that it is going to be an NDA government in place, bet on the cyclical themes.
Banks, industrials, infrastructure plays like construction companies and engineering companies would also be a good bet. Names like L&T would not be a bad bet at this stage, if you are betting on an NDA government.
However, do remember the element of risk involved.
Do not put all eggs in one basket
It is advisable to diversify your risk. Looks for defensives and dividend yielding stocks, as well as companies that are high beta. You can make it a portfolio that is even slightly skewed towards one, depending on the outcome you expect. In any case, the next few weeks and months are going to be interesting for the stock markets.
It is difficult to predict the outcome of elections, but, Dec 11, when election results for Madhya Pradesh, Rajasthan, Chattisgarh, Mizoram and Telangana are known, would provide some clues on the mood of the nation.
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