Jefferies global equity strategist, Chris Wood continues to believe in India’s growth story, terming it as Asia’s best long-term structural story in terms of equities in his latest GREED & fear note. Despite the headwinds that domestic markets are facing, Chris Wood advised investors to accumulate their favourite Indian stocks on weakness. The ace market strategist said that the government remains focused on reforms despite the inevitable setbacks triggered by Covid. “GREED & fear continues to believe that the long-term dividends from many of these reforms will become self-evident over the due course of time ….” he added.
Chris Wood highlighted that reforms will be fruitful for India as he singled out the Insolvency and Bankruptcy Code as one such reform. He further added that the political position remains strong in favour of the current government.
Tax revenues growing stronger
Talking about India’s policy measures, Chris Wood said that while monetary policy has probably been too dovish, fiscal policy has been successful in the sense that revenues have continued to surprise on the upside so far this year, as was the case last year. India’s tax revenues rose by 34% on-year to Rs 27.07 lakh crore in the financial year 2022. With the rise in tax revenue, Chris Wood has now termed the GST reform “a major success”. He further added that the government is now reaping the benefit from much greater compliance, a process enabled by the transparency provided by Aadhaar.
Further, the ace market strategist noted that another positive has been the government accounts in the second term of the Modi administration. “In this respect, if the Indian government was a company it is surprising on the upside in terms of revenue collection while also improving the transparency of its accounting,” he said. Wood acknowledged that the fiscal deficit is running at 6.4% of GDP but highlighted that growth in spending is primarily on capex and infrastructure, not transfer payments.
Slow reform process
Chris Wood has also lauded the government’s production-linked incentive (PLI) schemes where India is now seeking to encourage manufacturing in a whole range of sectors. This has been noted as a positive and a more targeted and focused effort to boost manufacturing than any previous one. However, the long process of reforms has been highlighted. “Meanwhile if GST is now seen as a success, the project is also reflective of how long it can take to introduce change in India since GREED & fear was reminded this week that a GST tax was first mooted back in 1986. A complicating factor here is India’s federal structure which means that the 28 states had to buy into the project as well as the federal government,” Wood said.
No rush to increase position
Chris Wood is overweight on India but rising oil prices and interest rate hikes have kept him from increasing his overweight position despite bullish outlook. “The need to tighten monetary policy, with more rate hikes likely coming, combined with the continuing risk, if not probability, of a much higher oil price, is why GREED & fear has been in no hurry to add to the Overweight in India this year,” the note said. Wood added that he expected India to underperform in the Asian context in the first quarter of this year, which is akin to what FIIs expected and hence the mammoth selling seen by foreing funds so far. “GREED & fear continues to believe that this is a year where investors should accumulate their favourite Indian stocks on weakness in what remains Asia’s best long-term structural story in terms of equities,” Chris Wood said.