Stock market upside capped from current levels: CLSA

MUMBAI: Stock market’s upside is capped from current levels as there are hardly any meaningful positive triggers in the near term, said CLSA. Continued delay in passage of the GST bill, softening of high-frequency indicators and corporate earnings growth, which is unlikely to play out before October-November, are potential sentiment dampeners, the brokerage said.

India’s premium valuation is a cause for concern. The Nifty is currently trading at 16.1 times its one-year forward earnings, a premium of 11% to its 10-year average, while earnings downgrades to the consensus expectation of 23% growth for fiscal year 2017 appear likely, said CLSA.

The brokerage said India’s economic growth improvement will be slower, as investment cycle recovery will be slow due to weak property market, while earnings estimates face downside risk.

CLSA’s top buys include HDFC Bank, IndusInd Bank, ICICI Bank, RIL, Power Grid, Sun Pharma and Zee. Among the sectors, the brokerage has overweight positions on IT, private banks and energy; and is underweight on staples, cap goods, pharma and materials.

CLSA has trimmed Infosys’ weightage in its model portfolio, saying the best for the company is already behind; while it has increased weightage for Persistent Systems saying it offers the fastest revenue growth in the IT space because of its digital strategy.

The brokerage has dropped Marico from its model portfolio citing expensive valuations and replaced it with Dabur. CLSA has also removed Cairn India from its model portfolio because of its negative view on crude and Coal India due to weak demand and higher supply.