Chris Wood Goes More Overweight On India Despite Covid Fears
India’s weight in the Asia Pacific portfolio will rise, Jefferies Chris Wood said in his Greed & Fear report, citing the domestic stock market’s “extraordinary resilience” and optimism on vaccine rollout in the next six months.
The Indian ‘overweight’ level on the Asia Pacific relative-return portfolio (excluding Japan) will be increased by 2 percentage points to 14%, back to where it was at the end of last quarter, Wood wrote in the report. That will come by reducing China’s weight by 0.5 percentage points and Malaysia’s by 1.5 percentage points.
The fact that MSCI India has underperformed the MSCI AC Asia Pacific (ex-Japan) index by 4% so far this quarter, after outperforming 2.5% in preceding three months, also helped this call.
Greed & Fear had reduced India’s ‘overweight’ level at the end of last quarter because of the near-vertical rise in Covid cases from the low reached on Feb. 11, which indicated the arrival of more infectious new variants. On a more short-term basis, Greed & Fear would have removed all exposure to India at the start of this month given the scale of the second wave of the pandemic and the massive net foreign buying of Indian equities in recent months (despite the withdrawal fall in April).
But Wood invests with a six-month view. “And that long a view, as well as factors like likely peaking of cases in Mumbai, rising hopes of herd immunity as well the upcoming vaccine rollout, give him some hope of Indian getting a handle on the crisis,” the report said.
While the renewed restrictions on activity also raise the potential risk of a deterioration in asset quality for the banking sector, any marked pull back in India’s quality private sector banks will be a buying opportunity for those who missed the explosive banking rally from the lows of late March 2020.
The quartet of HDFC Bank Ltd., ICICI Bank Ltd., Kotak Mahindra Bank Ltd. and Axis Bank Ltd. are enjoying a growing share of deposits, Wood said, adding to his conviction that investors should bet on the banking space in India.