Macquarie has bet on select India stocks as it remains overweight on domestic equities despite a sharp run-up.
The Sydney-based financial services provider listed eight stocks—seven large caps and one mid cap—picked using a bottom-up approach from its coverage universe of more than 120 companies, according to its focus list released on Dec. 7. Of these, Macquarie sees the biggest upside potential in Bharti Airtel Ltd., followed by HDFC Life Insurance Co. and Bharat Petroleum Corp.
That comes as the research firm remains ‘overweight' on India even as benchmarks scaled new peaks. After tracking worst global selloff in more than a decade, Indian stocks saw a one-way rebound. The Nifty 50 has rallied 80% from its 52-week low of 7,511 on March 23, riding on optimism about a quicker-than-expected economic recovery, a potential Covid-19 vaccine and foreign inflows.
Macquarie shared a September note by Asia equity analyst Viktor Shvets to reiterate that India represents the best very long-term opportunity in emerging markets outside China, has a large domestic market and a stronger-than-average ability to implement more aggressive modern monetary theory policies.
The nation's role in emerging markets is likely to rise as more Chinese names are blacklisted by ESG criteria, societal values and trustees of investment funds, it said.
But there are a few headwinds as well. India is the most expensive emerging market with one of the deepest likely downgrade cycle. Supply-side bottlenecks, erratic policies and gummed-up banks, too, are preventing the country from realising its full potential, the note said.
Focus List
Macquarie listed stocks from sectors including IT, telecom, infrastructure, pharma, oil & gas and financials as top picks. The seven large caps, with more than $10-billion market cap, on the list are expected to return in excess of 20% in six to 12 months, according to Macquarie. It expects the only mid cap in the focus list to nearly double during the period.
