 "CLSA 2025 India portfolio: TaMo, NTPC, Nestle, Britannia in; HDFC Bank out")
CLSA 2025 India stock portfolio: Hong Kong-based capital markets firm CLSA has made adjustments to its 2025 India stock portfolio by adding Tata Motors, NTPC, Nestle, and Britannia, while removing HDFC Bank, the country’s largest private lender.
Other stocks in CLSA’s 2025 India portfolio include Reliance Industries, Tata Consultancy Services, ICICI Bank, ITC, Axis Bank, Oil & Natural Gas, SBI Life, Hindalco, Jindal Steel & Power and IndusInd Bank.
The decision comes as analysts foresee a challenging global macro environment and a near-term slowdown in India’s economic growth, compounded by high valuations. As a result, the firm expects muted returns for the Nifty in 2025.
CLSA highlighted the underperformance of capital expenditure (capex) spending compared to expectations and the growing momentum for affordable consumption, leading to an increased focus on consumer staples, which the firm has categorised as a ‘big overweight.’
“Skimming for large cap stocks which have fallen over 20 per cent from highs, we add Tata Motors, NTPC, Nestle and Britannia to our India focus portfolio while we remove HDFC Bank and notably cut our overweight in banks,” said Vikash Kumar Jain, Adarsh Agarwal and Aditya Jaiswal of CLSA.
They also remain overweight on commodities and insurance. On the flipside, IT, discretionary, industrials and healthcare are big underweights.
Factors behind CLSA’s addition of TaMo, NTPC, Nestle & Britannia, and removal of HDFC Bank
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The rationale behind these changes stems from a recent steep market correction, analysts at CLSA said in a note. More than half of the NSE 200 stocks are trading over 20 per cent below their 52-week highs.
Of these, about 30 stocks carry a positive recommendation from CLSA. After a major decline of over 35 per cent, Tata Motors is seen as sufficiently accounting for risks related to a slowdown in the commercial vehicle sector and its Jaguar Land Rover (JLR) division.
Similarly, NTPC’s recent correction has opened up an opportunity to invest in the power sector, with the firm anticipating potential gains from capacity additions in the first half of 2025.
CLSA also added Nestle and Britannia to its portfolio to capitalise on favourable government policies supporting affordable consumption. These stocks have seen notable declines, creating an attractive entry point, and strengthening the defensiveness of the portfolio amid a turbulent global macro outlook.
As part of this reshuffling, CLSA has removed HDFC Bank from its portfolio, reducing its overweight on banks in anticipation of potential rate cuts by the Reserve Bank of India (RBI).
Moreover, CLSA remains overweight on commodities and insurance sectors, while underweighting IT, discretionary, industrials, and healthcare stocks.
Other factors behind this outlook:
Conflicting macroeconomic set up
The outlook for 2025 remains influenced by a conflicting macro environment that presents both risks and opportunities. The severity of the trade restrictions under the incoming US administration, led by Donald Trump, could majorly impact export-focused emerging markets (EMs) like China. If Trump imposes less severe trade measures, there could be an inflow into EMs like China, potentially causing India to underperform in a broader EM rally driven by laggards. However, if the restrictions are harsher, India may benefit in comparison.
Another important consideration is the US Federal Reserve’s recent commentary, which raises doubts about substantial rate cuts in the US in 2025. Coupled with Trump’s economic stance, this could result in a stronger US dollar, creating headwinds for emerging markets, including India.
On the domestic front, with a new leadership at the Reserve Bank of India (RBI) and the likelihood of a cooling off in inflation due to a high base effect, the setup appears favourable for the RBI to consider rate cuts.
However, Indian bonds and the rupee outperformed global peers in 2024, which has led to their relative overvaluation. This could limit any major easing in Indian bond yields.
Lower expectations yield better risk-reward in affordable consumption
Regarding equity valuations, while Indian equities remain expensive compared to their long-term averages and relative premiums to peer markets, this may keep Nifty returns muted in 2025, analysts said.
Notably, bond and currency markets in India are currently trading at high valuations compared to global peers, which could dampen overall performance.
On the consumption front, the last six months have seen an increase in government spending on welfare schemes, particularly around state elections, which could help improve rural incomes and spur recovery in affordable consumption. With good monsoons and an increase in crop sowing, rural income growth appears promising, which could drive consumption recovery.
After recent market corrections, large-cap stocks in the affordable consumption sector are now trading at much lower premiums to their historical averages, in contrast to the massive premiums seen in investment and capex stocks.
Government spending on capex has declined massively, with double-digit reductions in fiscal year-to-date figures, and it is likely to miss its full-year targets. This may result in a shift toward consumption stocks in the short-term, offering a more favourable risk-reward outlook while also potentially cooling off the elevated valuations of investment and capex stocks.