“Rising populism could impact market valuations, at least in part due to protectionist trade and foreign direct investment policies inhibiting growth,” analysts led by James R. Sullivan in Singapore, wrote in a note. “Populism is a justifiable concern for investors.”

India is battling one of the world’s fastest growth of the epidemic, while the recovery in business activity remains patchy even after the gradual lifting of the virus-related restrictions. The devastation from the pandemic is fostering conditions in which populist rhetoric thrives, while the falling share of income going to the lower and middle-income groups will likely worsen this trend, the analysts said in the note. To be sure, Thailand and the Philippines are among other Asian economies facing a greater risk of populist policies, they wrote.

Populism is linked with weaker economic growth in the long-term, which could weigh on India’s rich equity valuations, the note said. The S&P BSE Sensex’s 12-month price-to-earnings ratio hit a record earlier this month after the gauge rebounded 45% from its March lows. That leaves little room for economic missteps and entails greater risk for cyclical stocks, particularly those whose fortunes track the wider economy.

“We advise minimal or reducing exposure to sectors linked to growth and investment cyclicals like financials, materials and energy except Reliance Industries,” Sullivan said. The analysts recommend focusing on consumer, services and healthcare-oriented companies instead.