đź“°"Modi Stocks"

Three big stories in Indian markets you can't miss.

January 31, 2025

Good morning, 

Welcome to the best way to stay up-to-date on India’s financial markets. Did you know that “Modi stocks” are doing twice as poorly as the rest of the stock market? We’ll tell you what this means for India’s economy.

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—Shreyas, [email protected]

Market Update.

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“Modi Stocks”

The term Modi stocks refers to companies seen as direct beneficiaries of Prime Minister Narendra Modi’s policies, particularly in capital expenditure (capex), infrastructure, public sector undertakings (PSUs), and select corporate houses.

And there’s some bad news. For some reason, Modi stocks are doing twice as poorly as the rest of the stock market.

Investment firm CLSA has identified 54 such companies, with key names including HAL, Bharat Electronics, Adani (of course), SBI, L&T, Reliance, and Power Grid Corp. While these stocks had been outperforming for some time, they have recently begun lagging behind the broader Nifty, which has declined 11 percent since September.

What’s Driving the Decline?

37 percent of Indians now are pessimistic about their future, as per a C-Voter survey, the highest since 2013. Despite strong GDP growth, persistent food inflation has eroded household purchasing power. Nearly two-thirds of survey respondents believe inflation has remained unchecked since Modi took office, and more than half say it has directly worsened their quality of life. Additionally, nearly half report stagnant personal income over the past year, even as expenses continue to climb. For many, keeping up with rising costs has become increasingly difficult. No doubt, Modi’s significant underperformance in the recent national elections can be explained by this underlying growth in pessimism.

If Modi stocks serve as a proxy for the effectiveness of Modi’s economic policies on the country, investors must expect the government to be too hamstrung to drive significant change.

What this means for India

India’s economy is still heavily dependent on state-led initiatives rather than organic private sector growth or institutional strength. Unlike in more mature markets, where industries are relatively insulated from political shifts, India’s economic trajectory remains closely linked to government decisions. India has undertaken major economic reforms under Modi, from GST to labor law changes. Investors may fear that a shift in leadership could slow or reverse these policies, particularly if coalition politics results in policy gridlock. Dependence on political tides is a bad sign for India’s markets.

Broader Implications for India

For companies reliant on public sector spending, uncertainty now extends beyond government funding to Modi’s own political standing. If his approval ratings continue to decline, infrastructure firms may scale back contract sizes, while financial institutions could tighten credit availability. Beyond electoral politics, the heavy concentration of business among a handful of politically connected firms raises ethical questions. But one thing is clear: if these 54 stocks struggle, the ripple effects could slow India’s overall economic growth.

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Written by Yash Tibrewal. Edited by Shreyas Sinha.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.