RIL, Bharti Airtel: What are Modi stocks, and why is CLSA bullish on them?

Stocks of companies such as Mukesh Ambani-owned Reliance Industries (RIL), Sunil Mittal-controlled Bharti Airtel, Indus Towers, and shares of select public sector undertakings like ONGC, Indraprastha Gas Limited (IGL), NHPC, which analysts at CLSA have termed as 'Modi stocks' in a recent report, have outperformed the Nifty50 in the last six months.

Against the 14 per cent rise in the Nifty, the average up-move for ‘Modi stocks’, CLSA said, has been 50 per cent over the past six months. This may be the basket which continues to rally the most if the market celebrates a strong election result for the ruling party on June 4, or vice versa.

To get a sense of the ‘election excitement’, CLSA scanned 183 stocks where an active futures & options (F&O) offering helped in making them the more liquid part of the Indian equity market. The election-linked expectations build-up, CLSA said, started about six months ago with a strong state election result for the ruling party in early-December 2023.

What are Modi stocks?

Over the past six months, while the Nifty50 has rallied 14 per cent, about 44 per cent of the stocks in the above list of 183 counters have underperformed Nifty which indicates the rally has not been broad-based.

Modi stocks

“We drill further and separate out the stocks which are perceived to be the most direct beneficiaries from popularly expected policy measures if we see a third term for the PM Modi-led ruling party with a strong electoral majority. As these stocks sectors and are rallying more on perceptions—for easy recall we call them ‘Modi stocks’. These are capex and infrastructure-linked sectors, PSUs or stocks of some corporate houses,” wrote Vikash Kumar Jain, Adarsh Agarwal and Hemant Kothari of CLSA in a recent note.

Adding: “Simplistically, we identify 54 of these 183 stocks as Modi stocks or about 30 per cent of the F&O universe. Interestingly, only five of these 54 stocks have underperformed over the past six months, which means around 90 per cent of the Modi stocks have outperformed Nifty over the past six months.”

 

Despite coming from varied sectors, all of the 27 PSU stocks from the F&O space have beaten the Nifty over the last six months, CLSA said. Of the 27 non-PSU 'Modi stocks', all stocks have outperformed the Nifty over this period other than five cement companies, which CLSA said, underscores that price action in the last six months has been singularly dominated by this election theme.

“This also means a large 58 per cent of the remaining 129 stocks have underperformed the Nifty during this period. In other words, picking outperformers was far tougher in this sub-set,” Jain, Agarwal and Kothari wrote.

Modi stocks run

Within this basket of Modi stocks, the preferred BUYs for CLSA India analysts are ONGC, NTPC, NHPC, SBI, Power Finance, IGL and Mahanagar Gas in the PSU space. Of the non-PSU Modi stocks, CLSA analysts like Ashok Leyland, Ultratech Cement, Larsen & Toubro (L&T) and the tariff-hike-linked telecom stocks via Bharti Airtel, Indus Towers and RIL.