CLSA turns overweight on Indian equities on strong growth, earnings prospects
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Brokerage CLSA has increased its exposure to Indian equities, citing prospects of strong economic growth, profitability and credit demand, and changed its portfolio allocation to a 20% overweight stance from 40% underweight earlier.
The brokerage, which had an underweight position on India between October 2022 and March 2023, noted that it persisted "far too long with its negative view" as it changed its stance.
Strong credit impulse - the change in new credit measured in relation to GDP -, favourable energy costs, robust corporate earnings growth, stable macroeconomic outlook and improving external balance dynamics will sustain the momentum in Indian equities into 2024, CLSA said.
The brokerage's change in stance on Indian equities comes amid an 8.75% rise in the blue-chip Nifty 50 this year.
The more domestically-focussed small- and mid-caps have jumped 31% and 28%, respectively, over the same period.
"We use the funds raised from our October 3 China downgrade together with funds made available by our August 23 45% underweight stance on Australia to upgrade Indian equities," CLSA analysts Alexander Redman and Della Chen wrote in a note.
India's growth dynamics support a sustained 15% annual earnings per share expansion, CLSA added.
On Tuesday, the International Monetary Fund raised India's economic growth forecast for the current fiscal to 6.3% from 6.1% earlier, citing stronger-than-expected consumption.
CLSA expects India's purchase of 45% of imported oil at discounted prices and inclusion into the global fixed income benchmark to improve the balance of payments funding gap.
The brokerage, however, flagged expensive valuations versus emerging market peers and a relative lack of central bank policy flexibility as key concerns. It noted that only financials, utilities and industrials traded at valuations lower than a year ago.
Among the CLSA's high conviction calls are the companies with the largest market capitalisation, including HDFC Bank, Reliance Industries, ICICI Bank and State Bank of India.
