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Why Jefferies’ Chris Wood Isn’t Adding To ‘Overweight’ In India

Greed & Fear had been expecting India to underperform in Asian context in the first quarter of this fiscal, says Chris Wood.

<div class="paragraphs"><p>Bull statue. (Source:&nbsp;Hans Eiskonen/Unsplash)</p></div>
Bull statue. (Source: Hans Eiskonen/Unsplash)

Jefferies’ Christopher Wood is in no hurry to add to the ‘overweight’ in India this year amid the need to tighten monetary policy with more rate hikes likely coming, combined with the continuing risk of a much higher oil price.

India was expected to underperform in the Asian context in the first quarter of this year as it probably would have done were it not for the further collapse in Chinese equities triggered by lockdowns, Wood wrote in a Greed & Fear note. “This had also been the expectation of foreign investors, which is why there was record foreign selling of Indian equities in the first quarter of this year.”

The market veteran said this is a year where investors should accumulate their favourite Indian stocks on weakness in what remains “Asia’s best long-term structural story in terms of equities”.

Policy Issues

While the monetary policy has probably been too dovish, Wood said, fiscal policy has been successful with tax collections under the current government continuing to surprise on the upside so far this year.

“Another positive is that the government accounts in the second Modi administration have been cleaned up, in the sense that a lot of previous off-balance-sheet financing has been moved above the line in accounting terms.”

If the Indian government, according to him, was a company it’s surprising on the upside in terms of revenue collection, while also improving the transparency of its accounting.

Wood On PLI Schemes, Geopolitical Temperature

The current round of production-linked incentive schemes, which the government has launched across 15 sectors, seems “more targeted and focused than any previous one”, Wood said.

“Greed & Fear also hears that Modi, after initially viewing manufacturing as a way to promote import substitution, has been convinced of the need to import in order to export.”

Besides, geopolitical conditions are moving in India’s favour given the growing interest in relocating production out of China. Citing PLI schemes, Wood said participation of Chinese companies has been banned via “unwritten instructions” by the government.

“As for Chinese activities in India, there has definitely been a pushback against Chinese investment since 2020 when incidents on the Chinese-Indian border triggered reconsideration in Delhi of the relationship between the two countries.”

With the Russia-Ukraine situation, “India’s neutrality is seen as a continuation of the country’s traditional non-alignment in foreign policy where the aim is to pursue its own national interest”, Wood said. “Still, there is greater awareness that India’s clout as an economy and domestic market gives it greater leverage with the West than was the case before, most particularly a West that is retreating in terms of its engagement with China.”