Incredible India earns upgrade from CLSA. 8 reasons, 20 stock picks behind the U-turn
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
