CLSA says ‘Rexit’ not end of India story

MUMBAI: The decision of Reserve Bank of India Governor Raghuram Rajan to not seek a second term would be negative for the equity market and the rupee in the immediate term, in light of global risk of ‘Brexit’ and concern over dollar outflows when NRI deposits mature over the next few months, CLSA said in a note today.

The focus now will be on who is appointed as his successor and the market would likely assume initially that Rajan’s successor will go easy on interest rate trajectory. but Rajan’s decision does not mean an end of India story, the brokerage said.

Nevertheless, the brokerage remains cautious on the market due to a mismatch between valuations and fundamentals.

CLSA is overweight on Tata Consultancy Services and HCL Technologies in the information technology sector. Among private banks, the brokerage is positive on HDFC Bank and IndusInd Bank. It’s other bullish bets include Power Grid Corp of India, Reliance Industries, Sun Pharmaceutical Industries and Zee Entertainment Enterprises.

Meanwhile, the benchmark indices recovered to trade 0.4% higher after suffering an initial bout of weakness on Rajan's exit news.