Chris Wood raises India weight by pruning China exposure; remains bullish despite lofty valuations

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Updated: August 24, 2021 11:41 AM

Chris Wood, global head (equity strategy), Jefferies has increased India weightage in his Asia Pacific portfolio this week.

Sensex, NiftyRisks seen ahead for Indian stock markets include the arrival of a new covid-19 variant, but that is a risk the country shares with the rest of the world. (Image: REUTERS)

Domestic benchmark indices corrected nearly 2% from their all-time highs last week when global markets witnessed a sell-off. The extraordinary resilience of the Indian stock market has been driven by growing retail investor activity and easy liquidity, according to Chris Wood, global head (equity strategy), Jefferies, who has increased India weightage in his Asia Pacific portfolio this week. Sensex and Nifty recorded a marginal fall last week even though other emerging market peers such as South Korea, Brazil and even Hong Kong corrected more than 8% each and Morgan Stanley’s EM Index tanked 15%.

Factors that aid D-Street’s growth

Sensex and Nifty are now less than 1% away from their all-time highs, recouping losses this week. “GREED & fear remains structurally positive on the Indian market despite the lofty valuation at 21.5 times 12- month forward earnings which creates a certain vertigo,” Chris Wood said in his weekly newsletter. “A new property cycle has commenced, a broader capital spending cycle should be coming sooner or later while the best companies have profited from deleveraging triggered consolidation in sectors like residential property and housing finance and indeed consumer finance in general,” he added. The pro-growth stand taken by the central government is also counted as a positive by the market strategist.

Risks seen ahead for Indian stock markets include the arrival of a new covid-19 variant, but that is a risk the country shares with the rest of the world. Meanwhile, the other risk stems from any change in RBI’s policy stance. The Reserve Bank of India raised its inflation forecast recently but is yet to signal a change in policy. “The RBI raised its CPI inflation forecast for this fiscal year to 5.7% in its policy meeting in August, up from 5.1% projected in June. Still, the RBI’s bond purchases under the Open Market Operations (OMO) programme have continued while there is no talk as yet of rate hikes,” he said. RBI has reiterated its support for the growing economy over the last few months. 

India likely to underperform in risk-off move

Restating his bullish views on the Indian stock market, Chris Wood added that India is likely to underperform in any global risk-off move triggered by tapering scares. With India’s outperformance and China’s underperformance, the former’s overweight in the Asian Portfolio has become Neutral. Keeping this in mind, Chris Wood has increased India’s weight by two percentage points with the money shaved from China and Hong Kong. “If India corrects more sharply in an aggravated tapering scare, the weighting will be added to. Meanwhile, China would be a natural outperformer in a tapering scare were it not for the continuing regulatory noise,” Chris Wood added.

Stocks in Asia Portfolio

India’s weight in the Asia Portfolio is 14% against MSCI AC Asia Pacific ex-Japan weighting of 11.1% — a 2.9% mismatch from the benchmark. Some of the Indian stocks in the Asia Portfolio include Reliance Industries, HDFC, ICICI Prudential Life Insurance, ICICI Lombard General Insurance, Godrej Properties, and ICICI Bank

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