However, analysts cautioned investors against buying in an emotion-driven frenzy, instead advising them to wait for clarity on policy implementation by the incoming administration and the impact on company earnings.
Shares of CESC, the Kolkata-based flagship of the RP-Sanjiv Goenka group that supplies electricity to the state capital and other parts of West Bengal, rose more than 6.5%. West Bengal-based tea companies McLeod Russel India and Dhanseri Tea saw share prices rise by 5% and 3% respectively. Bandhan Bank jumped 3.4%, while Emami climbed 2.6%.
“This looks like a classic sentiment-driven rally rather than a structural re-rating,” said Gautam Duggad, head of research (institutional equities), Motilal Oswal Financial Services.
“This trigger appears to be a sentiment enhancer that has led to a sharp rise in West Bengal-headquartered names. However, such moves are transitory unless supported by earnings visibility.”
Assuming the BJP takes charge of West Bengal, the policy will be pro-growth, which could help industries based in Kolkata or outside West Bengal in the medium to long term perspective, said Sunny Agarwal, head of fundamental research at SBI Securities.
“The rising stock price today is mainly due to the positive sentiment due to this election result,” he said. “The real impact in terms of the policy change and its impact on businesses will be seen in the medium to long term.” Most analysts say any policy or structural changes may take 18-24 months to be fully implemented. Only after this, there will be clarity on whether the policy steps will have a positive impact on the earnings of companies which are based on expectations related to the election outcome.
In terms of outlook, Agarwal believes that for the new government, the least likely outcomes in terms of policy changes could be in sectors like aquaculture, fisheries and ports since West Bengal is a coastal belt.
“BJP is known to create state-of-the-art infrastructure in any state, so infrastructure like roads, bridges and railways could be another focus area for the new incoming government,” Agarwal said. Furthermore, companies can benefit from pro-industrial and pro-growth policy in existing businesses in various sectors.
Duggad said that from a medium to long-term perspective, the sustainability of share prices will depend on key fundamentals and earnings. “Investors should be careful not to blindly exaggerate this momentum, as stock-specific performance will ultimately converge with earnings distribution rather than just sentiment.”
SBI Securities advised investors to focus on the fundamentals of the West Bengal-based company’s shares in the coming 12 to 36 months. “We continue to maintain a positive stance on some of the larger established businesses like Emami, Britannia, ITC or CESC, power related sectors and constructive on Bandhan Bank.”