CLSA identifies 54 “Modi stocks” that directly benefit from policies; RIL, PFC, ONGC part of the list

Brokerage firm CLSA believes Indian state-owned company (PSU) shares could peak in June or July ahead of the presentation of the new government’s first budget.

CLSA has identified 54 stocks, which it classifies as ‘Modi stocks’, as direct beneficiaries of government policies. The average rise in Modi’s share price has been at least 50% in the last six months. The Brokerage House expects that the price increases of these shares will continue in the event of a strong election result.

However, in the weeks after the election, CLSA expects investors will be in for a reality check that many of the positives have already been priced into this stock. “This may impact profit-taking by less patient holders of Modi shares,” CLSA said in its note.

The brokerage was referring to the previous two elections in 2014 and 2019, when PSU shares peaked a few weeks after the election results in June. CLSA expects it to happen in June or July this time.

The top buy recommendations identified by CLSA under ‘Modi stock’ include companies such as L&T, NTPC, NHPC, PFC, ONGC, Indraprastha Gas, Mahanagar Gas, Reliance Industries, Bharti Airtel and Indus Towers.

Given that CLSA expects this ‘election-themed’ rally to end in June or July, it sees bank stocks as the best risk-reward option in India in the second half of 2024.

In the banking and financial services sector, CLSA prefers banks due to their growth and HDFC Bank, ICICI Bank, Axis Bank and IndusInd Bank are already part of their Indian portfolio. “A marked retreat from rate cut expectations has allowed U.S. banks to outperform year-to-date, but Indian private banks have lagged,” CLSA wrote.

Brokerage analysts also like shares of companies such as Bajaj Finance, Max Financial, Zomato and Avenue Supermarts.

“The prevailing outperformance of Modi’s shares clearly indicates that high expectations of a favorable election outcome for the ruling party are blending with market expectations,” CLSA said.

Indian stocks remain volatile ahead of the Lok Sabha election exit polls scheduled for June 1 and then the results to be announced on June 4.