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Brokerage firm CLSA on Thursday said Indian companies are set to deliver the best two-year earnings growth among global peers even as India’s equity valuations may soon be overextended as its investor sentiment index is at a 20-month high. But, the valuations are not yet at the warning level.
“While India’s equity valuations versus bonds are still shy of the warning level, our proprietary India Bull-Bear Investor Sentiment Index is now at a 20-month high of 96 per cent bullish reading. Nifty FY24/FY25 EPS was cut by 1 per cent/1.4 per cent during the quarter, but India is still expected to be the highest earnings growth market. Limiting further cuts in the upcoming earnings season will be important,” CLSA said in a report.
The India Bull-Bear measures investor sentiment swung from an extreme-bearish reading of 8.2 per cent in mid-March 2023 (contra buy time) to an extreme bullish 95.9 per cent reading now, after a 14.5 per cent rally in the Nifty in about three months.
Portfolio
CLSA’s India focus portfolio is overweight in banks, insurance, energy and real estate, while IT, staples and discretionary ex-autos are top underweights. “Our portfolio favours value companies given the ongoing tactical rally,” it said.
Despite the downward revisions in Nifty EPS estimates by the brokerage firm, the Indian market has displayed resilience and emerged as the fourth best-performing market globally during the April-June quarter. This performance highlights the market’s ability to navigate challenges and deliver positive returns, CLSA said.
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