Bharat story basket: 10 stock picks by CLSA based on 3 defensive principles

Foreign brokerage CLSA says it remains optimistic on India's long-term growth prospects, as it estimated the domestic economy to surpass Japan's nominal US-dollar GDP by 2027 and reach $29 trillion in 2047 from the current $3.4 trillion.

The foreign brokerage, which sees a slowdown in growth until September 2024, followed by a cyclical recovery in 2025, said the upcoming demographic dividend, financial deepening, and a relatively stable rupee with sufficient forex reserves at the Reserve Bank of India (RBI) underpin its strong outlook. The domestic brokerage said it prefers large-cap liquid stocks to maximise capital protection and mid-caps for growth opportunities.

"Our Bharat story basket enmeshes our macro drivers, strategic sector drivers, and the immediate volatility in this market. In the near term, we build a slowdown in India’s growth into September 2024, followed by a cyclical recovery in 2025. Taking cognisance of the immediate future, we recommend holding on to large-cap liquid stocks, which provide increased capital protection and opportunities to achieve growth," CLSA said in a note on Tuesday.

The brokerage has recommended stocks namely Axis Bank Ltd, Bharti Airtel Ltd, Hindustan Unilever Ltd , ICICI Bank, Tata Consultancy Services Ltd, State Bank of India (SBI), Mahindra & Mahindra Ltd (M&M), NTPC Ltd, Sun Pharma, and UltraTech Cement Ltd.

CLSA's stock selection is based on three defensive principles: sectors that have already sold off or underperformed markets; traditional defensives; and stocks with a positive major event coming up.

CLSA said all of its stock picks have proven track records of delivering consistent returns. It also highlight midcap stocks Zomato Ltd, PVR Inox Ltd, Delhivery Ltd, Prestige Estates Ltd and One 97 Communications Ltd (Paytm) as offering long-term value.

CLSA said it does not see India's twin deficits (current account deficit & fiscal deficit) as a significant risk. The fiscal deficit is unlikely to improve soon, given that public investment continues to support growth in periods where private investment has slackened on excess capacity, it said.

CLSA said its base case growth projections do not factor in any improvement in efficiency. It sees India's growth driven by capital accumulation rather than efficiency, like China. Lastly, it said there is a broad political consensus about market-oriented economic reforms.

"We do not think a major difference in economic performance exists between governments with a simple majority and coalitions. It is really the global economic cycle that drives the Indian economy," CLSA said.

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