CLSA ups India allocation, says RIL, HDFC Bank and SBI among high conviction calls

Foreign brokerage CLSA has upped India portfolio allocation to 20 per cent above the MSCI benchmark against 40 per cent underweight earlier. India now accounts for 18.2 per cent of CLSA portfolio weight against 15.2 per cent weight it carries in the MSCI benchmark.

CLSA identified eight positive drivers to underpin its 20 per cent overweight position including a return to superior relative profitability for India compared with other emerging markets, strongest economic growth across primary emerging markets and more manageable energy pricing due to discounted Russian crude. CLSA said the trend breakout in earnings per share (EPS) is supported by GDP. A rebounding credit impulse is signaling robust equity momentum, it said.

"We argue India's margin contraction is late cycle, supporting a recovery in relative ORE and value creation versus EM. GDP growth dynamics are supportive of sustained annual EPS expansion given India's closely associated growth trajectories for economic output and corporate earnings," it said.

CLSA said its econometric regression model for India, which has historically explained 80 per cent of monthly index movements- signals the market is currently at fair value with 22 per cent upside potential in dollar terms, based on CLSA macro forecasts.

That said, it felt valuations relative to emerging markets remain distinctly unappealing and that the RBI is among the most beholden EM central bank to the Fed policy. This, it said, were two principal distractions from its positive view.

Indian equities are trading at fair value with 22 per cent upside potential, CLSA said. Reliance Industries Ltd (RIL), HDFC Bank Ltd, Bharti Airtel Ltd, ICICI Bank Ltd, State Bank of India (SBI) and Larsen & Toubro Ltd are among its high conviction calls. Others, as per media reports, included Axis Bank, Tata Motors and ONGC.

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