CLSA says exposure to Modi stocks limited, tweaks India portfolio as BJP falls short of majority

CLSA, which recently identified 54 Modi stocks, said its exposure to such stocks is limited to ONGC and Reliance Industries Ltd as these have rerated by less than 15 per cent in the last six months. The foreign brokerage said it fears de-rating in the expensive discretionary and capex space and now prefers the valuation support in private banks.

CLSA said even after Tuesday's market selloff, the index of Modi stocks has risen 34 per cent in the last six months versus only 9 per cent for the Nifty and 8 per cent for non-Modi F&O stocks.

"A big proportion of this upmove in Modi stocks has been led by a material re-rating in earnings multiples. This was another sign of rising conviction on predictable supply side policymaking and reforms going into the event, which appears very vulnerable now," it said.

"Recognising these uncertainties, we take out L&T from our India focus portfolio and replace it with HCL Tech. L&T has been in our portfolio since its inception in January 2021 and outperformed by a huge 106.2ppt. ITC remains our preferred staples name. We are now clearly overweight banks, commodities and IT along with insurance and staples," it said.

CLSA sad the election verdict of the BJP lacking a simple majority questions this conviction and raises doubts over a stable government and policy-making styles. These doubts openly question the notable premium of Indian equities versus history, compared to bonds, the near record premium of SMIDs and the recent re-rating of Modi stocks.

"Turning more defensive, we replace L&T with HCL Tech in CLSA’s India focus portfolio. Private banks, IT, insurance and commodities are our preferred sectors," it said.

CLSA said against expectations, the BJP has underperformed the most in the three biggest states viz. Uttar Pradesh, Maharashtra and West Bengal. All three states have a predominance of rural and agri voters, it said.

In addition, state elections in Maharashtra are scheduled in less than six months. "This makes us wonder if the new BJP government will take this voter feedback and dilute its unequivocal supply side policy-making style to also accommodate the rural and agri push to address this political reality," CLSA said.