Market Vs Modi Stocks: Only 8 out of 54 CLSA Modi stocks recover to pre-exit poll levels

Indian markets have been on a remarkable rally over the past three sessions since June 4, with Sensex and Nifty gaining 6.4 percent each while broader markets recovered 8.2 percent each

With Prime Minister Narendra Modi set to secure a third term with support from key allies, CLSA 'Modi stocks' have bounced back, recovering nearly half of the average losses incurred during the June 4 free fall.

Indian markets have been on a remarkable rally over the past three sessions since June 4, with Sensex and Nifty gaining 6.4 percent each while broader markets recovered 8.2 percent each. This comes after the big fall on June 4, the infamous counting day when the market experienced its biggest fall in four years with the Nifty tanking 6.6 percent. In the previous session on Monday, the market had surged on exit polls predicting a strong win for the BJP. Since the pre-exit poll level, the Nifty has recovered all losses and is now trading nearly at the same level.

Meanwhile, the performance of 54 so-called “Modi stocks” as classified by CLSA has been a rollercoaster. These stocks saw an average jump of 6percent after exit polls predicted a BJP-led NDA victory, followed by an average plunge of over 13 percent when the election outlook rocked the market. Only 8 out of these 54 stocks have been able to claw back to their pre-exit poll levels. About seven stocks are still trading about 10 percent lower than their prices on May 31, the day before the market reacted to the exit poll.

The 54 'Modi stocks' consist mainly of state-owned companies such as PFC, REC, HAL, SAIL, BPCL; banking names like SBI, PNB, Canara Bank, as well as infrastructure companies and those belonging to corporate groups like Reliance Industries, Adani Enterprises, and Adani Ports & SEZ.

On counting day, Indian markets reacted sharply to the election verdict, shocked at the BJP not pulling through an absolute majority. Nervousness over coalition politics and BJP’s ability to form the government weighed on the market. In the following three days, the market has staged a stunning recovery on a relief rally as the NDA closes in on forming the government. Analysts attribute the market's rise to the resolution of uncertainties and a gradual change in sentiment.

But many brokerage houses have revised their India strategies to reduce exposure to PSU stocks. The future direction of these stocks is believed to hinge on key budget policies, analysts added.

Under BJP's majority rule, PSU stocks thrived due to increased operational freedom, revenue visibility, export support, and expectations of divestment.
Analysts noted that recent falls in PSU stocks were due to overvaluation, prompting a necessary correction. Looking forward, PSU banks hold great promise, while other stocks may see rotational interest. Clarity from the next budget will shape government spending, influencing investment decisions in sectors like railways and ports.

Kotak Institutional Equities has phased out capital goods and PSU bank stocks due to a poor reward-risk balance after a sharp rally. Emkay predicts a short-term market derating due to increased risk, advising against PSUs and capital goods but foreseeing a rebound in consumption, especially in FMCG and value retailers, and expressing positivity about healthcare.
Despite the recent market turbulence, a Moneycontrol poll showed that a majority of market participants believe that the Nifty will end the year at a level above 23,000.

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