Lok Sabha 2024: As the Lok Sabha election results approach, global brokerage firm CLSA has identified 54 “Modi stocks,” primarily public sector undertakings (PSUs), which are expected to be “direct beneficiaries of the current government’s policies” under Prime Minister Narendra Modi.

According to CLSA, these stocks have been rallying in anticipation of a BJP victory when the election results are announced on June 4, 2024. The list includes numerous PSUs from capital expenditure and infrastructure sectors. CLSA predicts that stocks of India’s state-run companies may peak in June or July, ahead of the new government’s budget presentation, reflecting trends seen in previous elections.

Over the past six months, 90 percent of these “Modi stocks” have experienced an election-focused rally, significantly outperforming the Nifty index. These stocks have seen an average increase of 50 percent or more, compared to the Nifty’s 14 percent rise. CLSA selected these 54 stocks from a pool of 183, representing 30 percent of the futures and options market. Only five of these stocks have underperformed the benchmark during this period.

The buildup of election-related expectations began in December, following strong state election results for the ruling party. CLSA expects this trend to continue, especially if the incumbent government returns with a strong majority.

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

However, CLSA cautioned that this rally, driven by election-themed optimism, is likely to taper off by mid-2024. A few weeks after the election, CLSA anticipates a reality check for investors, as many positives will have already been priced into these stocks, potentially leading to profit-taking by less patient investors.

CLSA noted that after the 2014 and 2019 elections, PSU stocks peaked a few weeks after the results in June. While the “election-themed” rally is expected to end by June or July, CLSA views banking stocks as the best risk-reward play in India for the second half of 2024. It highlighted that, unlike Indian private banks, US banks have outperformed year-to-date due to a pushback on rate-cut expectations.

Indian equities are expected to remain volatile leading up to the Lok Sabha election exit polls on June 1 and the results on June 4. The “Modi stocks” listed by CLSA include prominent names such as 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 notable stocks include HDFC Bank, ICICI Bank, Axis Bank, IndusInd Bank, Ashok Leyland, UltraTech, Bajaj Finance, Max Financials, Zomato, and Avenue Supermarts.