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CLSA Raises India Allocation, Changes Stance To 'Overweight'

The brokerage cited rebounding credit impulse, improving external dynamics, robust GDP growth as key factors for the upgrade.

<div class="paragraphs"><p>The Gateway of India in Mumbai illuminated to mark 75 years of India's independence. (Photo: Vishwanathan Nair/BQ Prime)</p></div>
The Gateway of India in Mumbai illuminated to mark 75 years of India's independence. (Photo: Vishwanathan Nair/BQ Prime)

CLSA has increased its regional allocation for India to a 20% 'overweight' stance above MSCI benchmark.

The brokerage cited rebounding credit impulse, improving external dynamics, robust GDP growth as key factors for the upgrade, in a note dated Oct. 10.

It changed its stance from earlier having a contrarian underweight position between October 2022 and late March 2023, stating it persisted for too long with its negative view.

CLSA anticipates a positive trajectory for India's credit impulse to be supportive of equity and consistent with a 20–35% year-on-year growth in the Nifty 50.

"Favourable energy pricing with an impending global fixed income benchmark inclusion may improve the basic balance of payments funding gap sufficiently," the brokerage said.

India's late margin contraction cycle supports a recovery in relative return on equity and value creation when compared against other emerging market countries, the brokerage said.

The market is at a fair value with a 22% potential upside in dollar terms, based on its economic regression model, which has explained monthly index movements with around 80% accuracy, it said.

GDP growth in the country is supportive of a sustained around 15% annual earnings-per-share expansion due to a close association of growth trajectories with economic output and corporate earnings in the country, the note said.

The brokerage also highlighted that non-resident investors do not appear to be overexposed to India.

On the flipside, the brokerage said a struggle with expensive valuations and a relative lack of RBI policy flexibility are its principal concerns.

"India ranks as having among the least flexibility for interest rate accommodation versus emerging market peers on our monetary policy scorecard," it said.

Screening for quality growth names, its top picks with high conviction include Reliance Industries Ltd., HDFC Bank Ltd., ICICI Bank Ltd., Bharti Airtel Ltd., State Bank of India Ltd., Bajaj Finance Ltd. , Larsen & Tourbo Ltd., Axis Bank Ltd. , ONGC Ltd. , Tata Motors Ltd.

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