Global brokerage CLSA has turned relatively positive on India, citing a return of global investor interest and the revival of the "India TINA trade.""We turned positive sometime around around early April, and that was still more absolute positive. I would say that sometime over the last week or 10 days, we've turned relative positive as well," said Vikash Kumar Jain, India Strategist & Head of India Research at CLSA, speaking at the CITIC CLSA India Forum.
He said India has started outperforming other emerging markets again as investors diversify beyond the artificial intelligence trade."Just imagine, this quarter itself; it's been not even half of the quarter gone, we've seen India outperform EM by almost 25 percentage points in just six weeks," he said, adding that investors are once again looking at India as a diversified market opportunity.
While India may not have many listed AI-focused companies yet, it remains well placed because of its talent pool and the expansion of Global Capability Centres . He expects AI adoption to improve productivity over time, with the biggest beneficiaries likely to be companies that successfully deploy AI rather than firms directly building AI technologies.
Nikhil Gupta, India Economist at CLSA, said inflation is expected to peak at around 6.25% in December, while GDP growth is likely to moderate to around 6% in the second half of the fiscal year, with the March quarter potentially slipping below that level.
The brokerage expects the Reserve Bank of India to deliver one final rate hike in December, with inflation likely to peak before easing in early 2027. "We are working with only one rate hike... in December," he said, adding that weaker growth and easing inflation should reduce the need for further tightening after that."Inflation...
will move above 5% and close to 6.25% in December, which will be the peak month," he said. While inflation is expected to moderate from the January-March quarter, it is likely to remain above 5% during the first half of next year. Gupta said the first half of the fiscal year benefited from stronger government spending, goods and services tax -related effects and policy measures that cushioned consumers from higher input costs.
However, those supports could fade in the second half due to slower government expenditure, the impact of El Niño on agriculture and companies passing on higher costs to consumers. The Indian rupee has stabilised after a series of RBI measures, lower crude oil prices and improved equity inflows.
Gupta expects it to remain broadly in the 93.5-95 per dollar range over the coming months. The brokerage expects Brent crude to average around $80-$82 per barrel next fiscal year, assuming geopolitical tensions ease further and production from West Asia continues to increase.
Beyond AI, CLSA also sees opportunities in the consumer staples sector after the recent correction in valuations. Jain said higher inflation and rising interest rates have historically supported the sector, creating the potential for a multi-month investment opportunity.
Jain also remained constructive on the banking sector, saying Indian banks continue to offer attractive valuations relative to global peers. He said foreign ownership remains light while the interest rate cycle is turning favourable, making banks well positioned despite concerns around the impact of weaker monsoon conditions.
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