According to a CNBC TV 18 report, Brokerage company CLSA has turned overweight in India. It has increased its India portfolio allocation to 20 percent above the MSCI benchmark from a 40 percent underweight rate earlier.
Here are the Eight factors that CLSA has identified to Justify the 20% Overweight Position in india
Rebounding Credit Impulse
The Brokerages anticipate 12% nominal credit growth in India over the next three years, second only to Indonesia in 2024. And, according to CLSA, the RBI may begin relaxing sustaining credit demand by 2024.
More Manageable Energy Prices Given Discounted Russian Crude
India imports 86%, 49%, and 35% of its oil, natural gas, and coal usage, correspondingly, according to 2022 estimates.CLSA stated that instances of persistently high energy costs have historically been associated with a turnaround in India’s absolute and relative performance.
However, India’s rising Russian oil imports have risen to 45% of overall imports from a minuscule amount previously. According to CLSA, the Russian Urals mix is trading at a 13% discount to Dubai, which was formerly the main import source.
Improving Basic Balance & Likely Bond Inflows Support Rupee
CLSA is projecting India’s basic balance deficit to be completely eroded by the end of the financial year 2025 from the current 1.2% of GDP deficit.
The inclusion of Indian bonds in JPMorgan’s Emerging Markets index may attract inflows between $20 billion to $30 billion of net foreign purchases into the country’s domestic debt market.
Strongest Economic Growth Among EM Peers
The International Monetary Fund (IMF) boosted India’s GDP prediction for fiscal year 2024 to 6.3%, and the same for fiscal year 2023.
In addition, the Reserve Bank of India expects 6.5 percent GDP growth for the current fiscal year, which is 0.2 percentage points higher than the IMF’s latest forecast.
Indian Equities Trading At Fair Value
According to CLSA, Indian shares are presently trading at a fair value compared to current macro conditions, as opposed to being 21% overbought in November 2022 and 14% overbought in June 2023.
Return To Superior Relative Profitability
CLSA believes that India’s margin compression is now in its late cycle, which is consistent with the disparity between input and output prices.
The projection for India’s absolute and relative corporate profitability is a significant increase in Return on Equity from 6% in Emerging Markets(EMs) in the first quarter of 2023 to 34% higher by the first quarter of 2024.
Trend Breakout In EPS Growth Supported By GDP, Revisions
The outlook for India’s nominal GDP growth compared to the trend supports consensus EPS growth predictions of 15% and 13% for fiscal years 2024 and 2025, respectively.
“The uptick in EPS revisions being led by consumer, energy, and materials sectors while 12-month forward EPS forecasts for Indian IT names remain subject to deep negative revisions,” stated the CLSA.
Foreign Investors Not Over-Exposed
Non-resident ownership in Indian shares is much lower at 17.5%, compared to a peak of 20.6% in February 2021, although the pace of foreign net purchases remains consistent with the post-2015 trend.
CLSA has highlighted quality Indian stocks with high conviction based on the following criteria:
Stocks having a market capitalization of more than $6 billion, an ROE of more than 10%, and EPS growth that outperforms their respective Emerging Market sector rivals and are rated Buy by CLSA.
These are some of the top names: CLSA has Top picks in the Indian Market such as Ashok Leyland, BPCL, SBI Life, Mahindra & Mahindra, ONGC, ICICI Prudential, Tata Motors, ICICI Bank, HDFC Bank, Reliance Industries and Samvardhana Motherson.
Written by Omkar Chitnis
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