With India charting a sturdy financial recovery and displaying indicators of taming the spread of infections, equity strategist Chris Wood has located a lot more factors to be bullish on India. This week the international equity method head at Jefferies will improve India’s weightage in Greed & Fear’s Asia Pacific ex-Japan relative-return portfolio by 1 percentage point. This is regardless of the domestic stock industry trading at premium valuations, which he says has a tendency to decline.
“To be sure, the Indian stock market is not cheap with the market trading at 21.6x 12-month forward consensus earnings,” he mentioned in a current note. However, the industry veteran is hopeful that the various should really have a tendency to decline going forward as he cited Jefferies’ head of India study Mahesh Nandurkar who is seeking for 30%+ earnings development for the fiscal year 2022 and 13.2% true GDP development.
Recovery is right here
Aiding his bullishness on India are the constructive noticed amongst banks exactly where collection efficiencies have elevated to now becoming close to 90-97% and resumption of lending. To add to that are the increasing GST collections, which gained 1.4% on-year in November. Chris Wood mentioned that Jefferies has had some conference calls with Indian government officials in the previous two weeks, and the clear concentrate has been, on the fiscal side, to sustain public sector capital expenditure as outlined in the spending budget for this fiscal year announced in February. While he noted that India’s cyclical recovery has also taken location in the absence of any large fiscal stimulus, the trigger for recovery has basically been ending the lockdown.
Chris Wood noted that inflows into domestic equity funds stay adverse although retail investors have been a lot more active in the industry. “Jefferies’ India office estimates that non-institutional participation in equity trading volume rose to an average of 84.5% in July-September quarter, up from 82% in April-June and a long-term average of 74%,” he mentioned.
Global bond rating upgrade
Apart from the elevated weightage in Asia Pacific ex-Japan relative-return portfolio, Chris Wood will also improve India’s weightage in international sovereign bond portfolio by removing the weighting in the significantly reduced yielding Singapore 10-year government bond. “One reason for doing this is the relatively conservative Indian fiscal policy under the current BJP government. Another is the growing likelihood that India will, sooner rather than later, be included in global bond indices as a result of recent liberalisation measures,” he mentioned.
With the current alterations, India’s weightage in the portfolio will improve to 11.5% from 8.7%. Among domestic stocks, Chris Wood assigns a 6% weightage to Reliance Industries, 3% to Maruti Suzuki, 6% to HDFC, 5% to SBI Life Insurance, 5% to ICICI Lombard General Insurance, 5% to DLF, and 3% to ICICI Bank in its Asia ex-Japan thematic equity portfolio for lengthy-only absolute-return investors. In the coming year, the ace industry strategist sees a rise in oil costs as a threat to India’s macro story as properly as the Rupee. “This can be best hedged from the point of view of equity investors by owning oil stocks,” he mentioned.