Jefferies' Chris Wood pulls out from IndusInd Bank; increases weightage in Axis Bank, Gruh Finance

49 percent of Wood's 'Asia ex-Japan thematic equity portfolio for long-only absolute-return investors' comprises of Indian companies. Indian private banks have the highest weightage (15 percent) with HDFC Bank and ICICI Bank and Axis Bank at 5 percent each. Meanwhile, the housing finance companies account for 10 percent of his portfolio (HDFC and Gruh Finance at 5 percent each). Bajaj Finance is his only NBFC investment in India (5 percent weightage) while 6 percent weight is given to Godrej Properties — the only Indian real-estate company he has invested in.

Apart from these, he has a 5 percent weightage in Reliance Industries, 4 percent in Dalmia Bharat (Cement), and 4 percent in Arvind Fashions (Consumer).

Among other stocks in this portfolio (Asia ex-Japan), China accounts for 23 percent, while Indonesia and Korea have 7 percent and 5 percent weightage, respectively. China portfolio includes Alibaba (5 percent), 58.com INC (5 percent), and Ping An Insurance (3 percent), among others.

As for the Japan long-only portfolio, the investment in Sumitomo Mitsui Financial Group will be removed and one percentage point each added to the existing investments in Fast Retailing, SBI Holdings, and Mitsubishi Estate, his report added.

Wood also believes that the Reserve Bank of India (RBI) still has the potential to cut the repo rate by another 100 basis points (bps). The central bank has already slashed the repo rate by 75 bps since December 2018 when Shaktikanta Das took over as the RBI governor.

"The reason there has been so much room to cut rates is that the previous RBI Governor got the inflation forecast badly wrongly and so the Indian economy was facing unnecessarily high real interest rates for an extended period. The real repo rate, deflated by CPI inflation rose from 0.4 percent in July 2017 to 4.4 percent in January 2019 and is now 2.6 percent," Wood wrote in GREED & fear report.

He also said that 'Greed & Fear' is in complete agreement with the Modi government’s criticism of the previous monetary policy regime. It added that it is interesting that in India, in the recent years, one of the main drivers of the sharp decline in inflation has been falling food inflation, helped by increased productivity and improved distribution connectivity.

 

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