In a note on Wednesday, the foreign brokerage said the changes were in line with its cautious view on equity markets.
Last month, CLSA’s India Strategist Mahesh Nandurkar had said in a note that the record low equity risk premium and the gap between earnings yield and the bond yields are making the brokerage cautious on the Indian equity market. The gap between bond yield and earnings yield is at a near record high at 2.2 per cent but history suggests that such gaps do not sustain, CLSA had said in the note dated June 13. Healthcare became an overweight sector in its portfolio, with CLSA adding Sun Pharma to its model portfolio with a weightage of 2 percentage points.
In Wednesday’s note, CLSA increased weightage on the drug maker’s stock in the portfolio. CLSA believes that pharma is an under-owned sector with the worst now in the past.
Replacing Zee with Maruti’s stock, CLSA said the latter continues to report robust growth with market share gain.
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The brokerage removed Ramco Cements from its model portfolio saying that the cement industry has been witnessing surprising pricing pressure at a time when costs are on an uptrend. “The fight for market share, particularly by larger players, has raised concerns at a time when demand growth has been quite strong actually,” said CLSA. The brokerage said there will be margin pressure, which poses a risk to consensus earnings forecasts.
Another key exclusion was that of ICICI Bank. The private sector lender’s corporate governance credentials in the last few months have been tarnished by allegations of quid pro quo in providing loans.
