
Foreign brokerage CLSA, whose India-focused portfolio includes 19 stocks such as Infosys Ltd, Tata Steel Ltd, State Bank of India Ltd, Reliance Industries Ltd and Tata Motors Ltd, said its proprietary India Bull-Bear Investor Sentiment Index is now at a 20- month high, hitting a 96 per cent bullish reading.
The India Bull-Bear measures investor sentiment. It swung from an extreme-bearish reading of 8.2 per cent in mid-March 2023 (contra buy time) to an extreme bullish 95.9 per cent reading now, after a 14.5 per cent rally in the Nifty in about three months.
Nearly two-third of Nifty stocks are now trading at premium to their average valuations, but CLSA said India’s growth story is still intact, as it may have the highest earnings growth over the next two years when compared with other peer markets.
"While India’s equity valuations versus bonds are still shy of the warning level, our proprietary India Bull-Bear Investor Sentiment Index is now at a 20- month high 96 per cent bullish reading. Nifty FY24/FY25 EPS was cut by 1 per cent/1.4 per cent during the quarter but India is still expected to be the highest earnings growth market. Limiting further cuts in the upcoming earnings season will be important," CLSA said.
CLSA said Nifty’s stellar performance took its 12-month forward PE from 17.4 times at the start of the quarter to 18.6 times, which implies a 17.7 per cent premium to its average. It noted that only about 17 per cent of the trading days since 2005, the Nifty has been more expensive than the current PE.
"Taiwan (91st percentile), the USA (90th percentile) and Korea (89th percentile) are at more extended valuations than India considering their respective historical trading ranges. This outperformance has taken India’s valuation premium to the EM as well as Asia ex-Japan benchmarks to +1 std. of the long-term average," it said adding that India’s valuation premium over China today is well-above its past 10 and 15 year averages
CLSA said its India focus portfolio is overweight in banks, insurance, energy and real estate while IT, staples and discretionary ex-autos are its top underweights.
"Our portfolio favours value companies given the ongoing tactical rally," it said.
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