MUMBAI: CLSA and Goldman Sachs have cheered the government's Rs 2 lakh-crore recapitalisation package for public sector banks.

CLSA's chief strategist Christopher Wood has increased the weightage on India in the firm's Asia Pacific ex-Japan relativereturn portfolio by two percentage points by reducing weightage on South Korea.

Reaffirming an overweight stance on India, Goldman Sachs has raised its Nifty target to 11,600 by the end of 2018 from 10,900 by the September 2018 it had forecast earlier.

"The failure to address the banking sector issue more proactively has been the one major piece of unfinished business in the Narendra Modi administration...That vacuum should now be filled, which means it is now realistic to look forward to a new credit and investment cycle...," said Wood in his weekly newsletter `Greed and Fear'.

The increase in weightage brings India back to the "structural three times overweight position," said Wood.



Goldman Sachs termed the re capitalisation as a "gamechanging reform" that would fast-track resolution of non-performing loans, kick-start lending, boost economic growth and help corporate profits recover.

Lack of recovery in earnings and high valuations have been the key concerns surrounding Indian markets recently, resulting in foreign portfolio investors offloading Indian shares worth over Rs 23,000 crore between August and September.

"The re-rating of GDP growth expectations and removal of `left-tail' risk in the banking sector should support India's PE (price-to-earnings) premium relative to the rest of the Asian region," said Goldman Sachs.

Goldman has raised its stance on public sector banks to overweight and lowered non-banking financial companies to underweight as they see rotation out of NBFCs to the under-owned public sector banks. Goldman remains overweight on private banks and domestic cyclicals.

Upcoming elections
In a separate note by CLSA, the firm's India strategist Mahesh Nandurkar said that while media articles indicate that the Bharatiya Janata Party's (BJP) popularity has reduced, opinion polls suggest that it is likely to win the upcoming state elections comfortably.

Gujarat and Himachal Pradesh are headed for elections in November and December, respectively.

“While it's important for the BJP to win in Gujarat, the margin of win would also be analysed. The BJP has been ruling Gujarat for the last 22 years,“ said Nandurkar.

“The Congress has also been courting regional youth leaders, some of whom had successfully led local youthcastebased agitations in Gujarat over the last two to three years and the potential alliance could swing a vote share away from the BJP,“ he said.

CLSA's top picks include ICICI Bank, IndusInd Bank, housing finance, cement, property, Reliance Industries, Mahindra & Mahindra and ITC.