CLSA predicts BJP victory may fuel rally in 54 'Modi stocks'

Calling these scrips as “Modi stocks”, the brokerage said 90 percent of them have outperformed the benchmark Nifty 50 index in the past six months in anticipation of a BJP-win in Lok Sabha polls, as per reports.

According to reports, out of these 54 stocks, CLSA’s preferred picks include Larsen & Toubro, NTPC, NHPC, Power Finance Corp, Oil and Natural Gas Corp, State Bank of India, Reliance Industries, Bharti Airtel, Mahanagar Gas, Ultratech Cement, and Ashok Leyland.

CLSA opined that election-linked expectations build-up had started about six months ago with a strong state election result for the ruling party in early-December as the last six months had witnessed a clear basket trade.

The brokerage said since these state elections around six months ago, the Nifty 50 had risen 13 percent, while the average up-move for the stocks perceived to benefit directly from BJP’s victory had been around 50 percent.

“The dominant outperformance of Modi stocks clearly suggests high expectations of a favourable election verdict for the ruling party being baked-into market expectations,” CLSA said.

“A favourable outcome would raise investor confidence in India’s economic growth. This may encourage investors to play this growth beyond Modi stocks, which are direct policy plays,” the firm added.

CLSA said the outperformance of “Modi stocks” may continue in case of a strong election result, adding that there could be profit booking ahead of the Budget in July.

Highlighting a similar trend seen in the past two General Elections when PSU stocks topped-out a few weeks after the results, CLSA said, “Notwithstanding this anticipation-fuelled rally, a few weeks after the election, investors will be confronted with a reality check that many of the positives these stocks may have started baking-in will be realised only in a gradual manner. This may drive profit-taking by the less patient holders of Modi stocks."

CLSA believes shares of private sector banks would better play on Indian economic growth in the second half of 2024 given that they provide better risk-reward opportunities, as per reports.

According to reports,  in the last one year, when the Nifty PSU Bank index has surged a whopping 81 percent, the Nifty Private Bank index has risen only by 6.4 percent.

The brokerage said that though clear pushback on rate-cut expectations has allowed banks in the US to outperform, Indian private sector banks have been laggards.