CLSA's Managing Director and Chief Equity Strategist Alexander Redman on November 18 made a strong case for ploughing back foreign money in India, and underscored his disappointment in China equities.
While maintaining that foreign investors are likely to "run out of excuses" for not investing further in India and staying Underweight, Redman said in a world less friendlier for emerging markets, there is a case to up India weightage. "If you are considering the world is going to be less friendlier to EM and you are underweight in India, investors are going to forgive you for increasing weightage in India," Redman said at a gathering of reporters in Mumbai.
On November 15, in a tactical reversal, CLSA raised India allocation to a 20 percent Overweight, while cutting exposure to China.
Read More: CLSA raises India allocation to 20% Overweight on potential foreign inflows
The China Disappointment
Justifying the rationale behind CLSA's decision to raise India allocation and reversing its call on China exposure, Redman said he has been disappointed with China on account of the potential headwinds that it faces after Donald Trump winning the race to the White House, underwhelming stimulus measures by its National People's Congress, and the surge in 10-year US yields rising up to 4.5%, highest since May.
Moat Against Trump 2.0 Policies
Redman added that he finds India to have a "moat" against President-elect Trump's proposed economic and trade policies, given the domestic flows and lower exposure to US investments.
Redman said Trump may have to seek trade agreements with major economies instead of going for trade wars, as there could be retaliatory measures. He cited Robert Lighthizer, former US trade representative during Trump's previous administration, under whose watch Trump launched his trade war with China. Reports claim he has been sought to run the US trade policy in this term, a sign of increasing concerns for China.
Read More: Trump's 60% China tariff unlikely, Beijing may want to negotiate: Chris Wood
India Earnings View
Taking a benign view on India's earnings disappointment during the September quarter, Redman said he would make a case for having a longer term horizon here. "India is one of the markets where you will be forgiven to have a long-term Overweight exposure. At some time, the air pocket in earnings may stabilise."
CLSA said urbanization is a "huge" theme in India, and while the country has been slow in urban infrastructure growth, still "India has everything going for it".
"It is the last country to get on this urbanisation curve. You can pick some holes in India's story but in relative terms against other EM countries, the story remains strong," CLSA's Redman said.
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