Modi’s Market Miracle: BSE M-Cap Surges Fivefold to Rs 4.1 Lakh Crore Since 2014 Amid Election Optimism

Since Prime Minister Narendra Modi led the BJP to a clear majority in the 2014 Lok Sabha elections, the combined market capitalisation of BSE-listed companies has surged nearly fivefold, adding Rs 3,25,16,615 crore. This remarkable growth in market cap is attributed to the surge in many listed stocks and a flurry of IPO listings, totaling 2,076 since FY15. Significant IPOs during this period included Life Insurance Corporation of India, One 97 Communications, GIC Re, and SBI Card.

When Modi first assumed office on May 26, 2014, the BSE commanded a market cap of Rs 85,20,817 crore. As of today, this has soared to Rs 4,10,37,431 crore, an increase of 4.81 times. With Modi seeking a third term, and the election outcome scheduled for June 4, market sentiment remains positive. Analysts from Kotak predict that a BJP win exceeding 325 seats, with the NDA securing more than 375 seats, would be favorably received by the market. Such a result is expected to accelerate economic reforms, particularly in labor, land, agriculture, and electricity sectors, and drive further privatisation of PSUs.

Kotak foresees the BJP forming the next government with a comfortable majority, continuing its focus on economic development and liberalisation. Bernstein’s study highlights the decade of structural reforms under Modi, noting a shift from populism to fiscal discipline, with subsidies remaining flat at 4%, while capex has increased sixfold. Despite global challenges, India has maintained inflation control and pushed for FDI and manufacturing, showing significant progress.

As India transitions from reform to execution, continuity in power is deemed crucial for sustaining the macrocycle. This includes building infrastructure, scaling up manufacturing, enhancing exports, creating employment, and managing inflation.

Additionally, PSU stocks have experienced significant gains during the election season, driven by investor confidence in Modi’s re-election. The BSE PSU index has seen a market cap increase of nearly Rs 7 lakh crore since the beginning of the Lok Sabha elections on April 19. Stocks of defence PSUs, such as Cochin Shipyard, Bharat Dynamics, and Mazagon Dock Shipbuilders, have surged by 56-87%. Other major gainers include Rail Vikas Nigam Ltd, Hindustan Aeronautics, HUDCO, REC, Power Finance Corporation, IRFC, and Bharat Electronics.

The rally in PSU stocks, termed “Modi stocks,” is largely driven by expectations of continued infrastructure development and modernization policies under Modi’s administration. However, Vikash Kumar Jain of CLSA warns that post-election, investors might face a reality check as the anticipated benefits will take time to materialize, potentially leading to profit-taking.

Historical trends show that PSU stocks peaked a few weeks after the 2014 and 2019 elections. Market advisor Sandip Sabharwal cautions that current stock prices reflect a 30-40% continuous growth expectation over the next decade, suggesting the pace of the rally may slow down. If the BJP fails to secure a full majority, forming a coalition government, PSU stocks could be significantly impacted.

To mitigate risks, Jitendra Gohil of Kotak Alternate Asset Managers advises portfolio diversification ahead of the election results. Emkay Investment Managers recommend a multi-cap approach with exposure to both largecaps and midcaps to benefit from broad-based growth in Indian equity markets. BFSI, PSUs, and industrials are expected to perform well, with investment-related themes gaining traction as power capex builds up over the next 3-5 years.