The benchmark Indian stock market indices, Sensex and Nifty, have corrected nearly 10% from their recent highs over the past few weeks, but that appears to be good news to some. In a recent turn of events, Asian capital markets and investment group, CLSA, has reversed its India strategy. They have gone back from their tactical allocation shift from India to China and are again 20% Overweight on India – meaning they believe investments are likely to outperform their outlook. This is because they consider India as “arguably the principal scalable growth opportunity in emerging markets” after the recent correction.
If we analyse the market movement, large and midcap stock index MSCI India has corrected by almost 10% in dollar terms since CLSA sliced exposure in early October. Compared to the September 27 peak, MSCI India has corrected by 12%. This has also been a period when India has seen steady outflows by foreign institutional investors (FII). In November, FIIs have sold nearly Rs 31,000 crores in equities preceded by almost Rs 1 lakh crore worth of outflows in October. According to Alexander Redman, CLSA’s managing director and chief equity strategist, “investors we have met over the year have been waiting specifically for such a buying opportunity to address underexposure to what is arguably the principal scalable growth opportunity in EM.”
The question is what changed or what helped? Here is a look at 6 key factors listed out by CLSA:
1. Currency Stability
In Redman’s words, “India has lately become a relative poster child of EM FX stability”. He explained how “an uptick in bond net portfolio inflows post India’s inclusion into the JPMorgan GBI-EM fixed income benchmark, together with India’s rising global export market share (being relatively unexposed to the US) supports the external position.”
Also ReadIndia growth story largely priced in: CLSA
He however added that India does remain sensitive to energy prices as 86% of the country’s oil consumption is imported (49% of natural gas and 35% of its coal needs) and they “remain concerned about the potential for risk premium in the oil price or at worst, a substantive supply interruption from Iran-Israel tensions.” But a 10% discount applied to 40% of oil imports sourced from Russia is helping in “partially mitigating this risk.”
2. Earnings outlook robust
Earnings along with FII selling has been a key worry point for Indian investors.
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