CLSA, which recently identified 54 Modi equities, stated that its exposure to these stocks is restricted to ONGC and Reliance Industries Ltd, which have rerated by less than 15% in the last six months. The international brokerage stated that it fears de-rating in the pricey discretionary and capex market and now wants valuation support from private banks.

CLSA claimed that even after Tuesday's market selloff, the Modi stock index had climbed 34% in the last six months, compared to 9% for the Nifty and 8% for non-Modi F&O stocks.

"A significant chunk of this increase in Modi stocks has been driven by a considerable re-rating of earnings multiples. This was another indicator of growing confidence in predictable supply-side policy making and reforms leading up to the event, which appears quite vulnerable now," it said.

Recognizing these concerns, we have removed L&T from our India focus portfolio and replaced it with HCL Tech. L&T has been in our portfolio from its start in January 2021, outperforming by a massive 106.2 percentage points. ITC remains our preferred essentials brand. "We are now clearly overweight banks, commodities, and IT, as well as insurance and staples," the report stated.

CLSA expressed concern that the BJP's lack of a simple majority in the election calls into question this commitment and casts doubt on the stability of the government and policymaking practices. These issues publicly question the significant premium of Indian equities over bonds, the near-record premium of SMIDs, and Modi stocks' recent re-rating.

"To become more conservative, we replace L&T with HCL Tech in CLSA's India focus portfolio. "Our preferred sectors are private banks, information technology, insurance, and commodities," the statement read.

CLSA reported that the BJP underperformed the most in the three largest states, Uttar Pradesh, Maharashtra, and West Bengal. According to the report, rural and agricultural voters make up the majority in all three states. In addition, Maharashtra's state elections are coming in less than six months. "This makes us wonder if the new BJP government will take this voter feedback and dilute its unequivocal supply side policy-making style to also accommodate the rural and agri push to address this political reality," stated the CLSA.