Kotak Mahindra Bank Ltd.’s wealth unit dials down its bearish stance on India

The private banking unit has started advising clients to bring their cash holdings down and to selectively load up on mid-cap shares.

Kotak Mahindra Bank | @KotakBankLtd/Twitter

Mumbai: India’s top wealth manager last month retracted its most bearish call since 2013 on the country’s equities and advised clients to start loading up on mid-sized companies. Shares have surged since.

Kotak Mahindra Bank Ltd.’s wealth unit dialed down its bearish stance March 1, advising clients to be 10 percent underweight Indian equities from 20 percent previously, Srikanth Subramanian, senior executive director of the private bank, said in an interview. The change was driven by better liquidity locally, a more dovish policy stance in the U.S., and an increased market perception that the current Indian government will get another term.

Foreigners have pumped more than $8.4 billion into Indian stocks so far this year — the highest for Asia — on optimism that lower borrowing costs and a second term for Prime Minister Narendra Modi in upcoming polls would support earnings growth in Asia’s third-biggest economy. The advance in the benchmark equity index has made India the first among markets valued at more than $1 trillion to hit a record high in 2019.

The private banking unit had advised clients in August to move 20 percent of their allocations for equities into cash, Subramanian said. This was the highest recommended level of cash since 2013. Kotak changed its stance from March 1 and started advising clients to bring cash holding down and to selectively load up on mid-cap shares. The S&P BSE MidCap Index climbed 8 percent in March, its biggest monthly advance in three years.

Investor sentiment improved as the Reserve Bank of India boosted liquidity in the banking system through a currency swap. Governor Shaktikanta Das is also set to deliver a second consecutive 25 basis point interest rate cut on Thursday, according to most economists in a Bloomberg survey, reversing two hikes made by his predecessor last year.

Kotak Wealth, which manages about 2.6 trillion rupees ($38 billion), is the largest private bank in India by assets under management, according to Asian Private Banker.

“We have been watching the scenario very closely and ideally want to keep some powder dry going into election season as there could be news related volatility,” said Subramanian. “Earnings season is also around the corner and that is another factor to be considered before fully reverting.”