Stocks of ‘Bengal’ companies raise a cheer after BJP victory

Analysts, however, cautioned investors against buying into the sentiment-driven frenzy, instead advising them to wait for clarity on policy implementation by the incoming administration and impact on company earnings.

Shares of CESC, the Kolkata-based flagship company of the RP-Sanjiv Goenka Group, which supplies electricity to the state capital and other parts of West Bengal, rallied over 6.5%. West Bengal-based tea companies McLeod Russel India, and Dhunseri Tea saw their share prices rise 5% and 3%, respectively. Bandhan Bank jumped 3.4%, while Emami climbed 2.6%.

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“This looks like a classic sentiment-driven rally rather than a structural rerating,” said Gautam Duggad, head of research – institutional equities at Motilal Oswal Financial Services.
“The trigger appears to be a sentiment booster which has led to a sharp uptick in West Bengal-headquartered names. However, such moves tend to be transient unless backed by earnings visibility.”

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Assuming that the BJP will be taking charge of West Bengal, the policy will be pro-growth, which could help industries based out of Kolkata or West Bengal in the medium-tolong-term perspective, said Sunny Agrawal, head of fundamental research at SBI Securities.
“The rising stock price today is predominantly on the back of positive sentiment on account of this election outcome,” he said. “The actual impact in terms of changes in the policy and its impact on the businesses will be seen over a medium to long term.”Most analysts say it could take 18–24 months for any policy or structural changes to get fully implemented. Only thereafter, clarity will emerge on whether the policy moves would positively impact earnings of companies that have rallied on expectations tied to the election outcome.

In terms of outlook, Agrawal believes that for the new government, the low-hanging fruit in terms of policy changes can be in sectors like aquaculture, fisheries and ports as West Bengal is a coastal belt.

“BJP is known for creating state of-art infrastructure in any state, so infrastructure like roads, bridges and railways can be another focus area for a new incoming government,” said Agrawal. In addition, companies can benefit from a pro-industrial and pro-growth policy in existing businesses across sectors.

Duggad said from the medium to long-term perspective, sustainability of share prices will hinge on core fundamentals and earnings. “Investors should be careful not to extrapolate this momentum blindly, as stock-specific performance will ultimately converge with earnings delivery rather than sentiment alone.”

SBI Securities recommended investors to focus on fundamentals of West Bengal-based company stocks in the coming 12 to 36 months. “We continue to maintain apositive stance on few large established businesses like Emami, Britannia, ITC or CESC, which is more of a power-related sector and constructive on Bandhan Bank.”