CLSA turns 'defensive bullish' on India but warns a flood of IPOs could disrupt market's delicate balance

CLSA turns 'defensive bullish' on India but warns a flood of IPOs could disrupt market's delicate balance

India has been a rare underperformer in a blistering 2025 global equity rally, but relative valuation shifts, improving macro prints and a reversal of recent negative headlines justify a stance of “guarded bullishness,” according to Vikas Jain, head of research at CLSA. “We are not calling for a runaway bull market,” Jain told Moneycontrol on the sidelines of CLSA’s India Conference. “We are simply saying the downside looks limited because relative valuations have normalised and the headline environment is turning less negative.”

Jain framed the shift not as a turn from bearish to bullish but as a move away from an overly defensive posture to a more balanced risk stance. Still, he warned that the delicate equilibrium between buyers and sellers could be unsettled by a wave of new supply from IPOs, private-equity exits and foreign parents listing India subsidiaries. Even if priced at discounts, he said, primary issuance could test domestic absorption capacity—particularly if global risk appetite deteriorates.

Why CLSA Is Turning More Constructive
CLSA became more constructive in October, Jain said, pointing to three forces: valuation normalisation, improving headline economic indicators and a likely reversal of trade-tension narratives.

The biggest trigger, he said, was the shift in tariff expectations. In April–May, India was widely seen as a frontrunner to secure a tariff deal with the US, only to find itself viewed as “possibly the last.” That negative signal weighed on sentiment. Jain now sees the narrative turning as US sanctions on Russian oil reduce the pretext for broad tariffs. “We expect tariff rhetoric to soften over the next 3–6 months,” he said.

Growth data has also surprised to the upside. First-quarter real GDP was stronger than CLSA’s estimate, and Jain expects the September-quarter print to beat forecasts as well. “These growth surprises are already visible,” he said.

Where CLSA Is Bullish
Jain said market leadership has narrowed sharply this year, making stock selection more important than thematic positioning. “Concentration has increased. That’s why stock-level discipline matters more than broad market calls,” he said.

He highlighted three segments where CLSA is leaning constructive:

Rate sensitives, given policy and monetary dynamics, is first. Selective consumption, with the government appearing to pivot toward demand is his second pick. And IT, an out-of-consensus call.

Jain believes the sector could get relief as trade and tariff headlines cool. “Incremental disappointments may be limited after recent earnings cuts,” he added.

Earnings Remain a Constraint
Jain said analysts’ earnings expectations currently pose a constraint. With nominal GDP growth now at 8–9 percent, consensus earnings growth forecasts of around 16 percent for large caps over the next two years look aggressive. “That limits the scope for big upward revisions. The approach has to stay selective,” he said.

He expects partial upgrades to materialise only gradually and conditionally, depending on trade-deal progress and softer tariff rhetoric — highlighting the cautious nature of CLSA’s “defensive-bullish” stance.

Why India’s Underperformance Isn’t So Bad
Jain highlighted a striking divergence this year: of about 25 large global markets—representing the bulk of global market capitalisation—roughly two-thirds have made new lifetime highs in 2025, the highest share since 2007. India, despite hitting record highs in 19 of the last 25 years, missed out this year. “Current relative performance of India versus emerging markets is the worst we have seen in 25 years,” he said.

But the drawdown has been shallow. The market is only 1–2 percent below its record high, with a peak-to-trough correction of about 15 percent—milder than the 20-plus percent seen in previous pauses. Jain said this relative underperformance reflects the catch-up phase in global markets after India’s sharp outperformance between 2022 and 2024, while domestic flows have helped cushion the decline.

Domestic Flows, Supply Pressures and Risks
Record domestic inflows have not lifted the index because a large share of household savings has been absorbed by new issuances rather than the listed secondary market. “Domestic savings have leaked into new capital,” Jain said. “Foreign investors, meanwhile, move money based on relative allocations — those flows are episodic and price-moving. Domestic flows define the market’s floor and protect downside.”

He added that lower foreign ownership has reduced India’s beta to emerging-market shocks. “This shift in ownership mix is why India has moved from being seen as fragile a decade ago to being viewed as a quality-growth story within EM,” he said.

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