Jefferies' Christopher Wood raises weight on India portfolio

Woods said he remains structurally positive on the Indian market despite the “lofty valuation at 21.5 times 12-month forward earnings which creates a certain vertigo”.

Benchmark indices Sensex and Nifty have scaled a series of highs in the last few weeks. The extraordinary resilience of the Indian stock market has been driven, as in so many other markets, by the combination of growing retail investor activity and easy liquidity.

“A new property cycle has commenced, a broader capital spending cycle should be coming sooner or later while the best companies have profited from deleveraging triggered consolidation in sectors like residential property and housing finance and indeed consumer finance in general. Meanwhile, the central government remains firmly pro-growth,” he said.

Meanwhile, there has also been the excitement generated by the arrival of the high beta profitless tech theme in the Indian stock market, with the listing last month of Zomato, he noted.

Currently, 31 percent of Wood’s portfolio is in India. The index includes Indian heavyweights such as Reliance Industries, ICICI Bank, HDFC, Godrej Properties and ICICI Lombard General Insurance.

According to Woods, the major risk is the arrival of a new Covid variant. But that is a risk shared with the rest of the world.

The other risk is a change in the central bank’s dovish policy. The Reserve Bank of India has been raising its inflation forecast in recent meetings but is yet to signal a change in policy.

The RBI raised its CPI inflation forecast for this fiscal year to 5.7 percent in its August 4-6 policy meeting, up from 5.1 percent it had projected in June. Still, it has continued its bond purchases under the Open Market Operations (OMO) programme while there is no talk as yet of rate hikes, Woods noted.

Further, the easy money stance has clearly been one key driver of the rally, as in America, which is why he believes India is likely to underperform in any global risk-off move triggered by tapering scares.