Policy sensitive stocks may continue to benefit from the positive market sentiments created by the BJP victory.
After lagging the benchmark indices for most part of the last five years, policy sensitive stocks in the recent past gained momentum as the Street rode high on the hopes that the BJP-led National Democratic Alliance (NDA) would form a stable government.
FE's Policy Sensitive Index (PSI) comprising 27 stocks from the policy reliant sectors, including energy, power, mining, telecom, real estate, aviation and real estate, has outpaced the 30-share Sensex by 7% in the last three months. Broader enthusiasm that the Narendra Modi government would hasten project clearances, push for infrastructure spending and address issues like energy subsidies and gas pricing have given a boost to investor interest in these stocks. Even a broader rotation in the market from defensives to cyclicals have also benefited the index.
Fortunes of PSI companies, to a considerable extent, rely on political decisions and policy arbitrage related to land, environment and other natural resources. But policy impasse and a series of scams had pulled down PSI’s performance compared to the broader market in the last five-years.