We are tactically tilting our Model Portfolio towards (relatively cheap) domestic cyclicals and correspondingly away from (relatively expensive) global stories. This is based on two key arguments: weak global macros (external) and government policy initiatives (internal). We must confess that the foundations for this shift have been around for a while now (the regime change in May-14, softer commodity prices).
However, our stance was further emboldened by recent events (namely Chinese tremors, the Fed’s reluctance to raise rates and Governor Rajan’s bold 50 bps repo rate cut) which are likely to ease liquidity (inflows into India) and trigger policy initiatives. Given India’s relatively stable macros within the EMs pack and evidence that Government is leading the revival of the capex cycle, a tilt towards domestic cyclicals is called for.