Lok Sabha election results, market prospects: CLSA sees this sector as the best topic to cover in July

Global brokerage CLSA believes that narrow, thematic election rallies may end in the domestic stock market in June-July. However, he believes that in the second half of 2024, banks will be the best growth driver in the country in terms of risk and reward. The foreign company added that a favorable general election result will boost investor confidence in India’s economic growth story. This may encourage investors to take advantage of this growth beyond “Modi shares”, which are a direct political play.

Apart from ‘Modi stocks’, CLSA likes banks for their growth and HDFC Bank, ICICI Bank, Axis Bank and IndusInd Bank are already part of its portfolio in India. A marked retreat from rate cut expectations has allowed US banks to outperform year-to-date (YTD) performance, but Indian private banks have lagged behind. CLSA analysts also like Bajaj Finance, Max Financials, Zomato and DMart as attractive plays on the Indian growth story.

In its latest report on May 29, the foreign firm added that out of 183 liquid shares, F&O has identified 54 companies seen as direct beneficiaries of Prime Minister Modi’s policies, half of which are public sector undertakings (PSUs).

“Interestingly, over the last six months, 90% of Modi stocks have beaten the Nifty in the election-centric rally, compared to just 42% of other stocks that have outperformed. This situation is likely to continue in case of good election result,” CLSA said in the report, adding L&T, NTPC, NHPC, PFC, ONGC, IGL, MAHGL, Bharti Airtel, Indus Towers and Reliance are the preferred “Modi stocks” for CLSA analysts.

CLSA added that it is conducting further exercises and separating companies seen as the most direct beneficiaries from widely expected policy measures if they see a third term of the ruling party, led by Prime Minister Modi, with a strong electoral majority. Since these stocks and sectors are more based on perception, for easy recall CLSA has named them ‘Modi Stocks’.

“These are sectors related to capex and infrastructure, PSUs or shares of some corporates,” he said.