Jefferies’ Chris Wood bets on higher India allocation

By Ashley Coutinho

Christopher Wood, global head of equity strategy at Jefferies, recommended a 16% weighting in India, 2.3 percentage points more than the previous 13.7%, in the portfolio of Asia-Pacific assets excluding Brokerage Japan. China ranks first with 31.5%, followed by India, Taiwan (10.5%), Australia (9%) and Korea (9%).

Over the past 12 months, the MSCI India index (4%) has significantly outperformed the MSCI EM index (-24%). India’s contribution to global market capitalization stood at 3.4% at the end of August, an all-time high. Foreign investors poured $6.8 billion into Indian stocks in August after nine months of outflows from October to June.

Wood had been a little skeptical of the recent rally in Indian stocks amid tight monetary policy and high valuations. In a note last month, he said the stock market was poised to consolidate in 2022 after strong gains last year and the start of a monetary tightening cycle.

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Wood’s Asia ex-Japan absolute return long-only thematic equity portfolio includes stocks such as Reliance Industries (6%), HDFC Bank (6%), ICICI Prudential Life Insurance (5%), ICICI Bank (5 %), Godrej Properties (5%), Bajaj Finance (5%), ICICI Lombard General Insurance (4%) and L&T (4%).

Wood’s long-only portfolio in India includes names such as Reliance Industries (10%), ONGC (10%), HDFC Bank (8%) and ICICI Bank (7%). The long-only Indian equity portfolio is up 9.5% in US dollar terms on a total return basis since its inception on July 1, 2021, compared to a 7.5% gain for the MSCI India Index and a gain 6.2% for the Nifty Index. It has outperformed the MSCI India and Nifty indices by 1.9% and 3%, respectively, since inception.

India’s gross GST collections rose 20% year-on-year (year-on-year) to a record 1.68 trillion rupees in April and rose 28% year-on-year to reach 1.44 trillion rupees in August. GST collections increased by 33% year-on-year to Rs 7.46 trillion in the first five months of FY23 (April-August 2022). Bank credit growth in India fell from 7.1% year-on-year at the end of January to 15.3% year-on-year in mid-August – the highest level since November 2013, according to Wood’s presentation at the Jefferies on Wednesday. AsiaForum.

Indian stocks have rebounded smartly over the past two months, erasing all of the year-to-date decline. The Nifty is now trading up around 2% year-to-date and is strongly outperforming global markets. With this rally, the Nifty is now trading at 21x FY23E EPS, comfortably above its long-term average.

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