At a time when foreign investors are on a selling spree in India, global brokerage firm CLSA said on Monday that foreign investors may not be able to own India cheap since its growth story is almost fully priced in, with valuations and fundamentals currently capped at the high end
“Right now, India’ growth story is pretty fully priced…and India has probably capped at its fundamentals,” Shaun Cochran, head of research at CLSA said in a media briefing on Monday. “Do not presume that India cannot perform, just because it’s expensive, because expensive can remain expensive for decades…but you can say with a reasonably high degree of conviction that India is unlikely to outperform its nominal GDP growth rate,” he said.
Alternatively, if markets globally were to come down, which will draw India down with the rest of the world, it can exceed its fundamentals. With a 10% correction in Indian equities, 10% more people get interested to invest, he said.
Cochran explained that despite the fundamental conundrum for international investors–of wanting fair valuations for India’s apparent growth story–investors need to understand that they will have to pay for this story that the market understands and values.
The market understands that in the next cycle, India is likely to be a dominant market offering not just growth, but scale and liquidity, he said. “What’s attractive to investors right now is many have looked on with hope that India will correct to provide them the opportunity to actually reconsider India. And the other dynamic potentially is that India has such a vibrant domestic investment community that has conviction in India’s story.”
Alexander Redman, Chief Equity Strategist at CLSA also pointed out that India’s equity momentum has been driven by domestic investors with FII ownership at 17% being one of the lowest compared to other emerging markets. This he believes makes India the most-insulated in case of any tariff-related announcement by the incoming Trump administration.
Cochran further said that the market is highly competitive and that foreign investors are not going to easily get prices that are obvious to buy because if they were, everyone would have bought it before. “If you want to own India cheap, understand that you will probably either always be underweight or may never own it,” Cochran added, citing what he tells clients.
Going ahead, he said that the recent 10% correction has also provided foreign investors the opportunity to recalibrate their approach to India as compared to China. While China was the darling of global markets for over two decades—benefiting from its WTO ascension and dominance in global exports–but now it has reached maturity. Meanwhile the world is seeking more diversified supply chains post-COVID. This transition, he believes, creates an opportunity for India.
Last week, CLSA raised India’s allocation to a 20% ‘Overweight’, while cutting exposure to China. The global brokerage made a U-turn by shifting its “tactical allocation” to India from China, citing growing concerns over Beijing’s economy and investor sentiment after the US presidential election.