Seeing the strength in domestic stock markets, Chris Wood of Jefferies has decided to increase India's weightage in his Asia Pacific portfolio.
While the second wave of covid-19 continues to wreak havoc across the country, Dalal Street has remained resilient. The NSE Nifty-50 index is down just 3.4% since the middle of February while the daily new case count continues to surge higher. Seeing this strength in the market, coupled with other fundamental reasons, Chris Wood, Global Head (equity strategy) at Jefferies has decided to increase India’s weightage in his Asia Pacific ex-Japan relative-return portfolio. Chris Wood had trimmed India’s weightage at the end of the previous quarter when cases started to increase rapidly.
With the vertical rise in cases, lockdowns are back on the cards which pose a risk for asset quality. “The renewed restrictions on activity also raise again the potential risk of a renewed deterioration in asset quality for the banking sector,” Chris Wood said in his weekly GREED & fear newsletter. However, the market strategist added that any marked pullback in India’s quality private sector banks is a buying opportunity.
Private banks remain attractive
Private bank stocks saw a strong rally after hitting a low in March last year. The Nifty Private Bank Index has risen by 112% since the end of March 2020. Chris Wood highlighted that leading private lender such as HDFC Bank and ICICI Bank are down 10% and 9% from their 2021 highs reached in February.
Four of the largest private sector banks, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, and Axis Bank, have seen their share of deposits grow from 11% in FY2011 to 21% in FY2021. This, Wood says, presumably reflects a flight to quality given issues in recent years surrounding the likes of Yes Bank and other smaller lenders.
Housing market recovery only delayed
Earlier in January this year, Chris Wood had said that in the post-pandemic world, India’s housing sector will see a recovery. Now, he says that a sustained housing recovery in India will not end with the second wave but will only be delayed. The property market is expected to boom with a cyclical recovery post-pandemic. Sales volumes in the Indian housing market peaked in 2013 and continued to remain weak after reform such as GST and RERA. Jefferies Jefferies India property analyst Abhinav Sinha has predicted residential property sales to nearly double on-year basis in 2021.
Chris Wood will raise India’s weightage by 2 percentage points to 14% from the current 12%. This will come at the expense of China and Malaysia. With this, India’s weightage will be back to where it was last quarter.
Covid situation remains grim
The second wave of the coronavirus pandemic continues to remain harsh for India. Strict lockdown measures have now been in place at places such as Maharashtra and Delhi. Owing to such measures, the Jefferies Recovery Tracker for India has fallen by 12ppts from the peak of 103% in February to 91% last week or the lowest level since September 2020. The vaccine roll-out continues to progress but is still far behind the curve.