NDA's defeat good for long-term investors; 7 stocks to buy: CLSA

NEW DELHI: The crushing defeat of the NDA (it won 25 per cent seats) in Bihar is clearly a setback for Prime Minister Narendra Modi and investor sentiment. However, the prospects of higher economic growth stay, brokerage CLSA said in a note.

The Indian market has already underperformed MSCI emerging market index by 3-4 percentage points over the past two weeks. So, some negative political news is already priced in, the Asia-focused broker said.

CLSA is of the view that any over-reaction by the market can be used as an opportunity to buy. Their top picks are HDFC Bank, ICICI Bank, Zee Entertainment, Maruti, Infosys, Sun Pharma and Power Grid.

The global brokerage firm said a lot now depends on how the Prime Minister perceives this defeat. On the positive side, the government may accelerate delivery of services, such as 24X7 power.

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On the other hand, legislative reforms will become tougher, added CLSA. The market may fear that the prime minister will start spending more time on party politics and he would have less time for governance.

However, CLSA is of the view that the Indian growth story remains intact and the potential over-reaction by equity investors would be a buying opportunity.

Little impact on the Upper House:

Bihar has 16 of the total 244 seats in the Upper House of Parliament (Rajya Sabha). Currently, the BJP has four of these. By the end of 2016, BJP will likely add one more to the tally and give back the same in 2018.

Thus, no major impact on the maths in Rajya Sabha is likely post these elections, CLSA said. But, they expect opposition to the BJP/Modi to intensify at the national level.

Further, tough reforms, like labour reforms and land acquisition, are likely to take a back seat, says the Asia-focused broker. "We continue to hope that a resolution on GST will be reached soon but expect the winter session of Parliament to be stormy," CLSA said.