INSUBCONTINENT EXCLUSIVE:
Foreign Brokerage CLSA has retained cautious view on Indian markets after the Reserve Bank of India delivered a surprise rate cut in its
monetary policy on Thursday, and expectedly changed policy stance to 'neutral' from 'calibrated tightening'.
CLSA said the RBI was right in
cutting the rates as the decline in food inflation appears to be structural, and believes that possibility of another 25 basis point cut
exists in the next meeting as well
However, the brokerage believes that the rate cut announced on Thursday is not likely to be transmitted and instead, the borrowing cost
indicators showing signs of a small economic slowdown which has been acknowledged by the RBI as well, we believe it makes sense to be
becoming difficult for them to allocate more to India because of the high valuation difference, said CLSA.
Flows, both from overseas
investors and domestic investors, are likely to remain weak in the run up the general elections, which would drive a de-rating in the
market, it added.
Domestic investors inflows are showing signs of weakness because of concern that trailing returns are weak and also on
account of political uncertainties while FPI inflows are not doing great either, the brokerage said.
CLSA said insurance companies have been
consistent sellers for the last three months, selling cumulatively $1.7 billion in the secondary markets
A significant part of this selling could be driven by Life Insurance Corporation of India to accommodate the ?80,000 crore divestment
program for FY19, of which ?45,000 crore will likely happen before March 31, said CLSA.
India's Sensex trades at 16.8 times on a one-year
forward basis while MSCI Emerging Markets index trades at 10.6 times
So far this year, FPIs have been net buyers in Indian equities, amounting to ?2,000 crore
This is largely due to strong inflows in February
the key driver for market de-rating going into the elections as the political uncertainties mount
We are already beginning to some reversal in the relative performance as Nifty has now underperformed the MSCI AxJ (Asia ex-Japan) and MSCI
neutral on India but Singapore-based investors still carry a large overweight on India
Nifty is about 6% away from its lifetime high of 11,760.20 hit on August 28 but mid-cap indices are down more than 20% from their highs
CLSA said being overweight large caps over midcaps is the right portfolio strategy, and within large caps, the brokerage is overweight on
private banks and IT services.
