India’s safe-haven edge at risk, says CLSA, as Nifty and Sensex recoil after best day in 4 years

India’s status as a defensive bet amid global uncertainty may be waning, brokerage CLSA said in its latest India Strategy note, citing easing trade tensions between the U.S. and China and improving regional geopolitics.

The comments come as Indian benchmark indexes slipped in early trade on Tuesday, pausing after their strongest single-day rally in over four years, fueled by relief over a ceasefire with Pakistan.

CLSA noted that India had become a relative outperformer and a “hiding place” for investors in the wake of heightened global trade tensions and India-Pakistan border conflicts. “The rise in these fears made India a hiding place and second-best performing market since March,” the brokerage said.

However, with a China-U.S. deal now reducing fears of a trade war, the brokerage cautioned that “it may reduce the relative attractiveness in India,” CLSA said, reflecting the risk of relative underperformance if flows begin rotating back into Chinese equities.

The easing of geopolitical tensions in South Asia and a breakthrough in U.S.-China trade relations has dramatically improved global risk appetite. On Monday, Washington and Beijing agreed to slash punitive tariffs on each other’s goods for a three-month period. The U.S. cut tariffs on Chinese imports from 145% to 30%, while China lowered its duties on U.S. goods to 10% from 125%. Beijing also agreed to lift export curbs on rare earth minerals and magnets, which are critical for high-tech manufacturing.

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In response to the improving global outlook, CLSA upgraded the Indian information technology sector to “overweight” from “underweight”. The brokerage added Tech Mahindra to its model portfolio and replaced TCS with Infosys, citing better positioning to benefit from rising tech spending in the U.S.

Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, echoed this view. “Since the probability of a recession in the US has come down, Indian IT companies might benefit from the higher tech spending by US companies,” he said.

Beyond IT, CLSA expressed a preference for consumer staples, utilities, real estate, banks and energy sectors, while remaining less enthusiastic about industrials, materials, healthcare and discretionary.

The Nifty 50 was down 0.94% at 24,691.60 and the Sensex fell 1.08% to 81,555.06 as of 10:28 a.m. IST Tuesday, with nine of the 13 major sectors logging losses. Broader small-cap and mid-cap indexes outperformed, rising 0.6% and 0.3%, respectively. Defence and shipbuilding stocks led gains in the broader market on expectations of stronger order flows following the India-Pakistan skirmish.

“Technically, after a gap-up opening, the market successfully cleared the 24,500/81,000 resistance mark,” said Shrikant Chouhan, Head of Equity Research at Kotak Securities. “A long bullish candle on daily charts and breakout continuation formations indicate a further uptrend from the current levels.”

However, Geojit’s Vijayakumar cautioned that the rally lacked deep institutional support. “The sharp 916-point surge in Nifty was not caused by institutional activity… the market surge was triggered by short-covering and HNI plus retail buying,” he said. Foreign and domestic institutional investors together bought just Rs 2,694 crore worth of equities on Monday.

Traders are also turning cautious ahead of India’s April inflation data, due after market hours. Any upside surprise in consumer prices could weigh on rate cut expectations and dampen sentiment.

Anand James, Chief Market Strategist at Geojit, said near-term volatility is likely. “Expect dips early in the day, but if such dips are held above 24,810, expect resumption of uptrend aiming 25,075–126,” he said.

As institutional flows remain patchy and profit-taking sets in, CLSA’s strategy shift underscores a recalibration of investor priorities in a post-ceasefire, post-trade-war environment.

Also read | Sensex tumbles over 1,000 points, Nifty below 24,700; IT, bank stocks top drags

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