CLSA India strategy – add banks

Did you know that the banking sector in India has underperformed the markets in the current scenario despite Nifty being close to an all-time high? Bank Nifty is down 2% YTD vs Nifty being up 8% which makes an overall 10% underperformance so far.

CLSA Vikash Kumar Jain says financials outperformed country benchmarks in 14 of the top-19 world markets  YTD as investors view this sector as a great reflation trade.

Despite quality names and an end to a multi-year painful credit cycle, financials have underperformed YTD in India, possibly due to uncertainty on economic normalisation due to the second Covid-19 wave. According to him the recent peak in the wave should return investor focus to economic normalisation in the coming months, even as banks’ relative valuations are below the historical average and the overweight of foreign institutional investors is at multi-year lows.

They at CLSA in the India focus list add Axis Bank replacing by HCL Tech, as they reduce weight in defensives after their strong outperformance in the last two months.

This 13-stock portfolio has outperformed the Nifty by 19% YTD. Other Names on India’s Focus list are Infosys, ICICI Bank, SBI, Bharti Airtel,  Axis Bank, Larsen & Toubro, Sun Pharma among others. Other than banks, materials (Hindalco and Tata Steel) remain our big overweights, where we find record light positioning for domestic MFs and FIIs.