DMart: A Long-Term Retail Compounding Story
Among consumption-focused stocks, CLSA expressed strong long-term conviction in Avenue Supermarts, the operator of DMart stores. The brokerage described DMart as a free cash flow story in the making, comparing its expansion strategy with global retail giants such as Walmart and Costco.
CLSA observed that aggressive store expansion often results in limited or negative free cash flow in the early years. DMart is currently in this phase, with store additions expected to grow at 15–20% annually and management visibility extending to around 2,200 stores over the long term.
The brokerage also downplayed concerns around quick commerce, noting that even by FY35, such platforms are expected to account for less than 20% of urban consumption. This leaves ample headroom for DMart’s physical retail model, supported by its growing private label portfolio that offers products at significantly lower prices than branded alternatives.
Ashok Leyland and the Revival of the CV Cycle
In the automobile sector, CLSA highlighted early signs of a revival in the commercial vehicle (CV) cycle, supported by improving freight demand and reduced upfront costs following recent GST cuts. Ashok Leyland emerged as a preferred play on this recovery.
The brokerage expects Ashok Leyland to deliver a compound annual growth rate of around 10% in medium and heavy commercial vehicle volumes during FY27 and FY28. This growth, coupled with operating leverage and disciplined pricing, could help lift EBITDA margins to nearly 13.5%.
CLSA advised investors to focus on CV manufacturers rather than lenders, pointing out that financing growth typically lags behind a recovery in vehicle disbursements.
IT Sector: Beyond the AI Hype
CLSA’s assessment of the IT sector suggests that market narratives are gradually shifting beyond artificial intelligence hype. Interactions with companies such as Infosys, HCLTech, Wipro and Persistent Systems indicate that near-term demand remains steady, with client spending still focused on cost optimisation and vendor consolidation.
However, the brokerage noted that AI-led efficiency gains are being offset by incremental work volumes, helping sustain order book growth. CLSA expects Infosys to post healthy deal wins, supported by large contracts such as the USD 1.6 billion NHS deal spread over 15 years.
TCS Bets Big on AI-Led Services
Tata Consultancy Services stood out in CLSA’s report after the company disclosed annualised AI services revenue of USD 1.5 billion for the first time. TCS also reported next-generation services revenue of USD 11 billion, underlining the scale of its digital transformation efforts.
The company has outlined a five-pillar strategy aimed at becoming the world’s largest AI-led technology services provider. This includes internal transformation, service redesign, talent development, client-centric solutions and ecosystem partnerships.
Selective Opportunities, Not Broad Rallies
Summing up its outlook, CLSA said India’s equity market heading into 2026 is defined by selective opportunities rather than index-driven rallies. While global uncertainties and currency pressures persist, there is no sharp deterioration in domestic economic fundamentals.
For investors, CLSA’s message is clear: focus on companies with earnings visibility, balance-sheet strength and structural advantages. Whether through DMart’s long-term retail expansion, TCS’s AI-led evolution, or Ashok Leyland’s leverage to a recovering CV cycle, the next phase of returns is likely to be built stock by stock.