Indian markets might have given stellar returns in the year 2017 but that didn’t get rolled over in the year 2018 with respect to macro indicators.
“A worsening macro as evident in rising bond yields, which capture fiscal concerns and inflation, remains a key worry. We raise the weight on IT Services in our model portfolio to neutral keeping in mind the macro worries,” CLSA said in a note.
Ten stocks on which CLSA maintains its overweight stance include names like ICICI Bank, SBI, HDFC, ICICI Pru Life, IndusInd Bank, L&T, Astral, Sadbhav, Godrej Properties, and Sobha.
The low base of demonetisation helps the YoY comparison in Jan-18 but the monthly indicators are not as good as those in Dec-17. CLSA’s two-year growth analysis suggests that growth in certain categories, such as cement, diesel, and steel, came off marginally.
The encouraging trend in tractors and partially in two-wheelers (2Ws) as well offers visibility on the expected rural demand recovery. “On an absolute level, the 12-14% demand growth trend in cement keeps us optimistic on the housing market recovery theme as well,” the report added.
CLSA has been underweight on IT Services as the growth outlook has been weak due to structural reasons. “While that view has not changed, we believe that the worsening macro situation in India and the possibility of cyclical growth recovery in the US makes a case for the underweight to be cut,” said the report.
The global investment bank added TCS and L&T Technology Services to the model portfolio with 3ppt each. This has been funded by removing Tata Steel from the portfolio and bringing down RIL to neutral weight.
The property remains CLSA single-biggest overweight sector with 6ppt and this signifies our confidence in our view of a housing market recovery. “Financials and Industrials remain the other overweight sectors. Staples, Materials, and Telecom are the underweights,” it said.