clsa on indian stocks: Incredible India earns upgrade from CLSA. 8 reasons, 20 stock picks behind the U-turn

Joining peers Morgan Stanley, Goldman Sachs and Nomura, another global brokerage firm CLSA has upgraded India to increase India portfolio allocation to 20% above the MSCI benchmark. CLSA was underweight India by 40% earlier.

“Our previous contrarian underweight position worked between late October 2022 and late March 2023 but ultimately we persisted for too long with our negative view,” the brokerage said, adding that its econometric regression model signals that the market is currently at fair value with 22% potential upside in dollar terms.

CLSA cited 8 positive drivers underpinning its 20% overweight position on India:

1) A rebounding credit impulse signalling robust equity momentum
2) More manageable energy pricing given discounted Russian crude
3) Improving basic balance and likely bond inflows support the rupee
4) Strongest economic growth across primary emerging markets

5) Indian equities trading at fair value on our model with 22% upside
6) A return to superior relative profitability metrics for India vs EM
7) Trend breakout in EPS growth supported by GDP and revisions
8) Foreign investors do not appear over-exposed to Indian equities

“We argue India’s margin contraction is late cycle, supporting a recovery in relative ROE and value creation versus EM,” the brokerage said, adding that at a sector level, only financials, utilities and industrials are trading on consensus earnings multiples lower than a year ago.

CLSA analysts also screened a list of 20 high-conviction and liquid quality growth names – Ashok Leyland, Axis Bank, Bajaj Finance, BPCL, Bharti Airtel, Eicher Motors, HDFC Bank, ICICI Bank, ICICI Lombard, ICICI Prudential, IOC, IndusInd Bank, L&T, M&M, ONGC, RIL, Samvardhana Motherson, SBI Life Insurance, SBI and Tata Motors.

Last month, Nomura had also upgraded the Indian equity market to overweight status saying that valuations may remain expensive. In August, Morgan Stanley had upgraded India to overweight rating and ranked India as the No. 1 market in its basket of Asian emerging markets ex-Japan on the back of a structural uptrend and secular leadership.

Back in June, Goldman Sachs had also issued a report saying that it is overweight India given the medium-term growth prospects and had recommended foreign investors build exposure in this emerging market.

After touching a fresh high above the 20,000-milestone in September, Nifty still remains elevated near 19,800 levels. India has been the best-performing emerging market in terms of USD returns at 8%, surpassing Brazil at 6%.

While in the near term, the trajectory of Nifty would likely be guided by global macro factors and the Q2 earnings season, analysts believe that in 2024 a stable government after the Lok Sabha elections and continuation of economic policies can take markets to new heights.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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