“We’re getting into a period where there is a bigger liquidity demand in the system because of taxes, etc, as we draw to the end of the fiscal year, and this could very well have been because of that itself,” he noted.
Jain believes there are multiple factors at play such as the rupee depreciation and the uncertainty on the US dollar.
On January 27, RBI introduced measures to manage market liquidity.
He expects a rate cut later in the year, although the timing remains uncertain. Such a move would be more advantageous for wholesale-funded financials, particularly NBFCs and banks with less CASA (current account-saving account) dependence. They would stand to gain the most from both the current liquidity measures and any future rate cuts.
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CLSA currently prefers large and mega caps over mid and small caps, with its India-focused portfolio heavily weighted towards mega-cap stocks, many of which have a market capitalisation exceeding $40 billion.
“If you look at relative valuations on mid-caps, and the fact that there is some uncertainty around near-term economic growth, maybe we are experiencing a slowdown, and with those sky-high valuations, typically they would be far more vulnerable.”
CLSA made two significant portfolio decisions at the beginning of the month: they took an out-of-consensus overweight position in staples and a substantial underweight in industrials.
In addition, they have underweights in IT and healthcare, with a small overweight in banks. Commodities are another area where they hold an overweight position in the portfolio.
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