Furthermore, the global brokerage highlighted that over the past six months, 90 percent of the "Modi stocks" have experienced an election-focused rally, outperforming the Nifty index.
"The dominant outperformance of Modi stocks clearly suggests high expectations of a favourable election verdict outcome for the ruling party being baked into market expectations," CLSA said.
However, the global brokerage cautioned that this rally, driven by a narrow, election-themed optimism is expected to taper off by mid of 2024.
"This may drive profit-taking by the less patient holders of Modi stocks," it forecasted.
Other than these stocks, banks such as HDFC Bank, ICICI Bank, Axis Bank, and IndusInd Bank also have growth potential and their stocks could rise, CLSA stated.
As the Lok Sabha election results draw closer, global brokerage house CLSA has identified 54 'Modi stocks', predominantly public sector undertakings (PSUs), as "direct beneficiaries of the policies of the current government" led by Prime Minister Narendra Modi.
As per the brokerage, these stocks have been rallying in anticipation of the BJP government's return to power after the Lok Sabha poll results on June 4, 2024. The list includes many PSUs from capex and infrastructure-linked sectors. Going ahead, CLSA predicts that stocks of India’s state-run companies, or PSUs, might peak in June or July, ahead of the budget presentation by the new government, mirroring the trends observed in previous general elections.
Furthermore, the global brokerage highlighted that over the past six months, 90 percent of the "Modi stocks" have experienced an election-focused rally, outperforming the Nifty index. The average increase for these stocks has been 50 percent or more, compared to the Nifty's 14 percent rise.
CLSA identified these 54 stocks from a pool of 183, representing 30 percent of the futures and options universe. Only five of these stocks have underperformed the benchmark in this period, it added.
The buildup of election-related expectations began in December, following strong state election results for the ruling party and CLSA expects this trend is likely to continue, particularly if the incumbent government returns with a strong majority.
"The dominant outperformance of Modi stocks clearly suggests high expectations of a favourable election verdict outcome for the ruling party being baked into market expectations," CLSA said.
However, the global brokerage cautioned that this rally, driven by a narrow, election-themed optimism is expected to taper off by mid of 2024. A few weeks after the election, CLSA anticipates investors will be greeted with a reality check that many positives would already have been priced in, in these stocks.
"This may drive profit-taking by the less patient holders of Modi stocks," it forecasted.
CLSA referenced the patterns observed after the previous two elections - 2014 and 2019 - when PSU stocks peaked a few weeks after the election results in June.
While CLSA estimates this "election-themed" rally will end in June or July, it sees banking stocks as the best risk-reward play in India for the second half of 2024.
"A clear pushback on rate-cut expectations has allowed banks in the US to outperform year-to-date but Indian private banks have been laggards," CLSA noted.
Indian equities are expected to remain volatile in the lead-up to the Lok Sabha election exit polls on June 1 and the results on June 4.
Stocks
The 'Modi stocks' listed by the global brokerage include prominent names like Larsen & Toubro (L&T), NTPC, NHPC, Power Finance Corporation (PFC), Oil and Natural Gas Corporation (ONGC), Indraprastha Gas Limited (IGL), Mahanagar Gas, Bharti Airtel, Indus Towers, and Reliance Industries (RIL).
Other than these stocks, banks such as HDFC Bank, ICICI Bank, Axis Bank, and IndusInd Bank also have growth potential and their stocks could rise, CLSA stated.
Other stocks picked by CLSA are Ashok Leyland, UltraTech, Bajaj Finance, Max Financials, Zomato, and Avenue Supermarts.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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