International brokerage CLSA has identified 54 companies set to benefit from current government policies, with public sector undertakings (PSUs) making up half of these beneficiaries.

What Happened: The brokerage sees the rally in these firms, from capex and infrastructure-linked sectors, as reflecting an anticipation of the Bharatiya Janata Party’s (BJP) return to power.

Over the past six months, 90% of these election-sensitive stocks have outperformed the Nifty, a trend expected to continue if the incumbent government secures a strong majority, CLSA believes.

The brokerage has picked companies such as Larsen & Toubro, NTPC, NHPC, Power Finance Corp, Oil and Natural Gas Corporation, Indraprastha Gas and Mahanagar Gas as among those poised to benefit significantly from a favorable policy environment.

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However, CLSA noted that this narrow election-themed rally might conclude by June or July, ahead of the budget announcement.

Beyond PSU Stocks: CLSA predicts that PSU stocks could continue to rise until mid-year, driven by election optimism, but a post-election “reality check” might follow. This pattern echoes the last two elections, where PSUs peaked shortly after the results.

Looking beyond the immediate election effects, CLSA sees the banking sector as offering the best risk-reward profile for India’s growth in the second half of FY25. Banks such as HDFC Bank, ICICI Bank, Axis Bank and IndusInd Bank are highlighted for their growth potential, independent of direct government policy benefits.

Additionally, CLSA’s analysts point to stocks like Ashok Leyland, UltraTech, Bajaj Finance, Max Financials, Zomato and DMart as having strong prospects. In the telecom sector, it sees Bharti Airtel, Indus Towers and Reliance Industries as top picks.

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