Election times tend to be associated with a visible change in the economic activity as governments tend to spend a lot more and speed up the projects to boost the mood of the people. Such environment provides opportunities to some of the sectors that are directly related to policy making, the expenditure of the people and the consumption trends. The knowledge of these sectors aids investors in determining the areas of growth in case of an election period.
Along with a boom in contracts and execution, large engineering and construction firms usually experience an increase of this activity during this time. Firms such as L&T, KNR Construction and NBCC usually attract attention since they are the direct participants in government-supported projects. Long term investor confidence in this sector is also supported by the expectation of further infrastructure development.
PSU banks are instrumental in financing the initiatives of the government. Throughout the election seasons, with more infrastructure and welfare projects, credit demand shoots up. These large-scaled projects are usually the main recipients of lending by PSU banks leading to increased loan disbursements and better credit growth.
SBI and Bank of Baroda are institutions that are likely to enjoy this cycle because they are well connected to the government and enjoy wide lending power. Also, the high quality of assets and the increase in capital infusion especially in election years can also lead to an increase in investor sentiment of PSU banking stocks.
During elections, the FMCG sector shows improvement, and this is mainly due to high spending in the rural area. Governments tend to implement, or increase, welfare schemes, subsidies, and direct benefit transfers to assist the population. This will increase disposable income, particularly in the rural and semi-urban regions.
Consequently, there is elevated demand of basic consumer products like food, personal care and household products. This increase in consumption is usually enjoyed by firms such as HUL, ITC and Dabur. The industry is also said to be relatively stable and therefore, appealing to investors who seek stability when the industry is going through turbulent times.
During elections, the defense industry tends to pick up momentum as a result of the increase in emphasis on national security and self-sufficiency. Governments can focus on modernization of weapons, declare new orders, or promote domestic production as one of their political priorities.
Such companies like HAL, BEL and Bharat Dynamics are major players in this space and they are likely to attract investors during such times. Growth opportunities of these companies can be enhanced further by providing higher budget allocation and policy support to indigenous defense production.
Election cycles provide an opportune time to industries that are associated with government expenditure, credit growth, and consumer demand. The infrastructure, PSU banks, FMCG, and defense sector are usually the major beneficiaries as they are directly or indirectly related to the policy process and the mood of the people. To investors, monitoring such sectors can give them a good idea of what to expect in terms of opportunities during election-driven market trends.
