Reforms, pickup in earnings making India attractive, says CLSA

MUMBAI: CLSA said international investors’ ‘overweight’ stance on Indian market has come down from a year ago, but improving reforms momentum, expectations of a pickup in earnings growth from the second-half of the current financial year and falling inflation are pulling investors back to India, and that should help reduce its underperformance.

In a note dated Monday, CLSA said international investors’ current ‘overweight’ on India is of two to three percentage points compared to four to five percentage points a year ago. “India is being increasingly viewed as a defensive play within EMs (emerging markets) given the structural nature of the expected growth improvement. A potentially mild risk-off environment ( US elections or rate hike uncertainties) would be good for India’s relative performance,” the brokerage said, highlighting takeaways from its recently concluded investor forum.

CLSA said its top ideas — HDFC, Maruti, Power Grid, ACC, Ambuja, Indian Oil and ITC — saw good traction at its investor conference. Reliance Industries also remains an interesting bet, the brokerage said, retaining ‘overweight’ stance on the stock. CLSA added that it witnessed reduced investor interest in Axis Bank and Tata Motors among the large caps.

Last week, CLSA in its ‘Greed & Fear’ note cut weightage on India in its portfolio by two percentage points. On the corporate earnings front, it said after earnings disappointment in the past few years, Indian firms are expressing ‘guarded optimism’ after a good monsoon.

The brokerage also noted longterm optimism on the policy front. On GST, CLSA said there is confidence in the law being the ‘proverbial game-changer’ but it also noted that while the government is working towards implementing it from April 2017, the corporate world is underprepared.