Lok Sabha election results, market outlook: CLSA sees this sector as best theme to play from July

Global brokerage CLSA believes the narrow election theme-based rally may end in the domestic equity market in June-July. However, it sees banks as the best risk-reward growth play in the country during the second half of 2024. The overseas firm added that a favourable outcome in the general elections would raise investor confidence in India’s economic growth story. This may encourage investors to play this growth beyond ‘Modi stocks’, which are direct policy plays.
 
Outside ‘Modi stocks’, CLSA like banks for its growth with HDFC Bank, ICICI Bank, Axis Bank, and IndusInd Bank already a part of its India portfolio. A clear pushback on rate-cut expectations has allowed banks in the US to outperform year-to-date (YTD) but Indian private banks have been laggards. 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 overseas firm added that from the F&O universe of 183 liquid stocks, it has identified 54 companies that are perceived as direct beneficiaries of PM Modi’s policies, half of which are public sector undertakings (PSUs).
 
“Remarkably, 90% of Modi stocks have beaten the Nifty in the election-focused rally over the past six months versus only 42% of the other companies outperforming. This may continue in the case of a strong election result,” CLSA said in a 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 drills further and separates out the stocks which are perceived to be the most direct beneficiaries from popularly expected policy measures if they see a third term for the PM Modi-led ruling party with a strong electoral majority. As these stocks and sectors are rallying more on perceptions—for easy recall CLSA named them ‘Modi stocks.’
 
“These are capex and infrastructure-linked sectors, PSUs or stocks of some corporate houses,” it said.