Christopher Wood remains bullish on Indian markets despite run-up; prefers real-estate sector

"The economic downturn is not going to happen since the vaccine rollout implies the opposite and the resulting unleashing of pent-up demand, which will be given further momentum by the sheer scale of the Covid-19 stimulus announced last week by the now inaugurated President Joe Biden," Wood explained in the note.

Another major reason for the rise in benchmarks is faster than expected earning recovery. Wood expects this earnings momentum to continue. He sees earnings growing by 37 percent in FY22.

Among sectors, the report remains bullish on the real estate sector on the back of expected sales revival after a prolonged slump. Nifty Realty index has also performed mostly in line with the frontline Nifty 50—rising nearly 90 percent since March 2020 low. Among individual stocks, Sobha Developers, Godrej Properties, DLF and Brigade Enterprises have more than doubled during this period since then.

Jefferies noted that sales volumes in the Indian housing market have peaked out in 2013, and were still one-third below their peak in 2019 before the Covid-19 outbreak. But going ahead, it sees residential property sales nearly doubling this year on a YoY basis. Yet, then they would still be 30 percent off their 2013 peak, it added.

Also, currently, the prices are very cheap as historically low mortgage rates make borrowing affordable, it noted.

"Meanwhile, the fundamentals of the market on the ground are much healthier as a result of the Real Estate (Regulation and Development) Act implemented in 2016. The result, combined with other shocks such as demonetisation, the introduction of GST and now Covid-19, has meant a brutal consolidation. Indeed GREED & fear, in many years of following property markets, has never seen a consolidation like it which is why the surviving major quoted developers should be viewed as long term holds," the report further explained.