Here's why CLSA is overweight on India; top five stocks to bet on

NEW DELHI: India has been one of my favourite markets in Asia and remains so most particularly since the national elections 2014, said CLSA’s Chief Strategist Chris Wood in an interview with ET Now.

“I am viewing India as a five-year story given the fact that Modi has been elected for five years,” said Wood. In fact, he has allocated 41 per cent of his long only portfolio to India.

“We are coming close to the end of the QE tapering in the US. So, the nearer we come to the end of tapering, the bigger is the risk of a stock market correction. Even if there is going to be any trouble in the financial markets, it is going to be caused by rising credit spreads. If credit spreads do not rise, there would not be a problem,” added Wood.

Chris Wood further said that he is viewing India as a five-year story given the fact that Modi has been elected for five years. “Modi is the most pro-business, pro-investment political leader in the world today. So in all likelihood he would get the investment cycle going again,” he said.

The Modi administration is committed to lowering the fiscal deficit by 160 bps by FY17. The effect of his initiatives taken will become more visible from 2HFY15.

The early signs of the economic bottoming out are already in sight, which is good news for domestic recovery plays. CLSA is overweight on banks, autos and public sector undertaking companies.

In a recent report released last week, titled ‘Bits & Pieces’, CLSA said that the renewed investment cycle should significantly favour infrastructure asset owners and contractors such as Larsen & Toubro. Corporate lenders such as ICICI Bank and SBI should also benefit.

Among building material companies, they prefer Grasim. Ensuing job creation will be positive for discretionary consumption plays such as Bharti Airtel. State-owned oil companies will appreciate subsidy cuts and their favourite pick is ONGC.



The China Angle:

The size of the Indian equity market has surpassed both Australia and South Korea, making it the third largest ex-Japan market in Asia, behind China and Hong Kong, stated the report.

On most time-frames within the past 5 years, India’s (the tiger) market has smashed China’s (the dragon) China Enterprise index in local currency terms.

But due to the appreciation of the RMB and the INR's depreciation in USD terms, China has actually outperformed India over the past 3 years.

According to Chris Wood, the bad news is that China is cyclically slow, probably because the markets are correcting. But the good news is the government seems serious about reforms, which is a long-term positive.

If the anti-corruption campaign continues, that will be a short-term negative for growth, but that is again a long-term positive, he added.

A report authored by Francis Cheung of CLSA said that “we expected the market (China) rally to fade away by 3Q, but economy is weakening faster than expected. The government stimulus is having less of an impact which is highlighted by diminishing returns.”

It will be difficult for China to meet this year’s 7.5 per cent growth target, but another stimulus is unlikely for this year, added Cheung.

Although the market has rallied with government stimulus despite lacklustre results and slowing growth, but with weaker PMIs and continuing property correction, we are cautious on the market, added Cheung.

(The above article is compiled with inputs from a CLSA report, titled ‘Bits & Pieces’, released last week)