Just a month after reducing India’s overweight to 10% to increase exposure to China, Hong Kong-based brokerage firm CLSA has reversed its stand. The brokerage on Friday decided to go 20% above MSCI weight on India as it “no longer has sufficient conviction to maintain an above benchmark exposure on Chinese equities into 2025”.
Interestingly, the brokerage’s U-turn comes just over a week after Donald Trump won the US presidential election. Pointing to the results of the elections, CLSA in its latest report titled ‘Pouncing Tiger, prevaricating dragon’ said: “The most fundamental requirement in determining our China allocation was to understand policymakers’ motivation. Is this economic window dressing … or a determined initiative to redirect economy…. After NPC’s (National People’s Congress) plan to bail out local government debt, we have been left wanting, anxious that the motivation is more aligned with the former than the latter.”
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On India, it said it is one of the few emerging markets where the relationship between corporate earnings growth and the changes in the pace of economic output holds true. This is despite the concerns over slowing earnings growth in the last two quarters.
Not everyone, however, is as positive. Citigroup has downgraded India stocks to ‘neutral’ from ‘overweight’, citing stalling earnings growth and pressure from foreign investors selling following China’s recent policy support measures, and said China could see an upside surprise if Beijing delivers on its policy stimulus.
Citi has forecast India’s Nifty 50 index to touch levels of 25,000 by September 2025 – about 6% rise from hereon, while CLSA is projecting a 13% US dollar upside potential (for Indian equities) over the next 12 months, based on its economic projections.
While brokerage firms have said the foreign portfolio investors’ (FPIs) selling in India was primarily driven by the need to shift fund flows to China, some experts believe it was a play on US equities.
Samir Arora, founder of Helios Capital, believes FPIs have been selling in India to buy US equities, and not China. “India to US shift trade would have largely played out with average Indian stock down 10-15% and average US stocks up 10% since September end.
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