CLSA cuts India overweight rating

Joins list of foreign brokerages lowering ratings on India in the recent past

Hong Kong-based CLSA has joined the list of top foreign brokerages such as Goldman Sachs, Deutsche Bank and Morgan Stanley in lowering their ratings on India. CLSA’s Christopher Wood, among Asia’s well-known equity strategists, cut the brokerage’s ‘overweight’ rating on India by a per cent, in favour of Vietnam.

“In India, growth continues to slow and currency risks grow, as investors respond nervously to the mixed signals sent by the central bank and the finance ministry, even if confirmation this week that Raghuram Rajan has become RBI (Reserve Bank of India) governor will be a positive for the sentiment, at least temporarily,” Wood said in his report ‘Greed and Fear’ released late last week.

Earlier in the week, Nomura had warned of downside risks to its Sensex target of 21,700 by March 2014, as the Indian market’s “macro ecosystem” had worsened in the near term. “Any negative move in interest rates will be a cause for the market multiple coming off, even as a meaningful revival in growth looks elusive,” the brokerage had said.

In recent weeks, foreign brokerages have turned more pessimistic about India’s prospects, as worries about a slowdown have heightened amid the rupee’s weakness. Early this month, Goldman Sachs had cut its rating on India, citing increased risk of foreign institutional “flow reversal” from equities and the sluggish growth outlook. It cut its 12-month Nifty target to 6,200 and didn’t rule out more downgrades in case the rupee weakened further. “Very little foreign selling has occurred in Indian equities relative to the massive foreign inflows over the past few years,” Goldman Sachs analysts led by Sunil Koul had said in a note to clients.

So far this month, foreign institutional investors have net bought shares worth Rs 814 crore, after net selling shares worth Rs 6,100 crore in July. So far this year, these investors have mopped up shares worth Rs 66,900 crore ($12.62 billion).

In July, Deutsche Bank and Morgan Stanley cut their ratings on India. While Deutsche trimmed its Sensex target from 22,500 to 21,000, citing rising global risk aversion, Morgan Stanley lowered India’s rating among Asia-Pacific markets.