As the four phases of the election draw to a close and the final outcome looms just three weeks away, investors looking to hedge their stock portfolios against increasing volatility should consider focusing on certain sectors. These sectors either remain unaffected by election results or are currently trading in a ‘value zone,’ providing a measure of stability.
One promising sector is banking, as highlighted by Prabhudas Lilladher. The brokerage firm notes that many banks are currently trading at a price-to-book value significantly lower than their historical averages, making them a good hedge in the current market. While banks might suffer if India faces a de-rating, private banks appear to be better positioned compared to their public sector counterparts, which carry higher risk. To manage risk, Prabhudas Lilladher caps the maximum weight of any single stock at 10 percent. They have increased their weighting on Kotak Mahindra Bank from 2.8 percent to 3.7 percent, citing that recent RBI restrictions will have only a temporary impact on its performance. The risk-reward profile looks favorable at 1.6 times FY26 price-to-adjusted book value.
The brokerage firm has also identified sectors and stocks that are solid investments regardless of which political regime comes into power. They have become ‘overweight’ on the consumer sector for the first time in two and a half years. This optimism is driven by positive developments in rural India and normal monsoon patterns, which are expected to boost demand for consumer staples. Additionally, any potential post-election freebies could significantly re-rate the sector. As a result, they have increased their positions in Hindustan Unilever (HUL), ITC, Britannia, and Titan, anticipating a rebound in the second half of the fiscal year 2025.
By focusing on these strategic sectors, investors can better hedge their portfolios against election-related volatility and potentially benefit from stocks that are poised for growth, regardless of the election outcome.
