Brokerage firm CLSA in its latest strategy report focusing on India elections and picture beyond has analysed the impact of Indian Prime Minister Narendra Modi’s policies on the stock market. According to their recent report, CLSA has identified 54 companies perceived as direct beneficiaries of PM Modi’s policies, with half of them being Public Sector Undertakings (PSUs).
A remarkable trend highlighted in the report is that 90% of these “Modi stocks” have outperformed the Nifty index during the election-focused rally over the past six months. This surge in performance is attributed to market optimism surrounding the potential continuity of Modi’s policies in case of a strong election result.
Among the preferred Modi stocks identified by CLSA analysts are heavyweight names such as L&T, NTPC, NHPC, PFC, ONGC, IGL, MAHGL, Bharti Airtel, Indus Towers, and Reliance Industries.
However, CLSA cautions that this narrow rally, primarily driven by election expectations, may come to an end in the near future. The report suggests that investors should brace themselves for a reality check post-election, as many of the anticipated positives priced into these stocks may only materialize gradually. This could lead to profit-taking by investors who are less patient with their holdings.
History serves as a guide, as CLSA points out that following the last two elections, PSU stocks reached their peak a few weeks after the election results, typically in June. They anticipate a similar scenario unfolding this time around, with the potential for profit-taking occurring in June or July, prior to the budget announcement in July.
Looking ahead, CLSA identifies banks as offering the best risk-reward ratio for India’s growth play in the second half of 2024.
In summary, while the anticipation-fueled rally in Modi stocks has been impressive, investors are advised to tread cautiously and prepare for a potential correction post-election, as the full realization of positive outcomes may take time to materialize.
