NEW DELHI: Market veteran Christopher Wood in his latest Greed and Fear report talked about string pushing in China and animal spirits in India. The global head of equities at Jefferies, who has assigned India a dominant 40 per cent weightage in the Asia ex-Japan long-only portfolio, says India is by far the best structural story in Asia.
Wood said he is surprised by stock market resilience in the face of bearish sentiment triggered by the wave of foreign selling, prevailing high valuations and monetary tightening.
India, he said, is the exact opposite of China with all the positive multiplier effects of a new up-cycle in property after a seven-year downturn which lasted from 2013 to 2020.
Further, evidence of economic resilience and animal spirits is continuing strong GST revenues and buoyant retail sales. GST collections rose 28 per centYoY to Rs1.49 lakh crore in July, the second-highest level ever, he said.
“The Retailers Association of India reported that retail sales in July were 18 per cent higher than the pre-Covid July 2019 level. It is also a positive that credit growth is picking up with bank loan growth of 14.5 per cent YoY in late July, the highest level since March 2019. Meanwhile the latest quarterly bank results showed a benign combination of rising credit growth and declining NPLs,” the report said.
As for evidence of a capital spending cycle, Wood said, the latest earnings season was positive from the standpoint of the industrial sector.
Order books of the eight industrial companies covered by Jefferies Indian office rose by 40 per cent YoY in June quarter, including a 57 per cent YoY increase in Larsen & Toubro’s order flow
As far as domestic stocks are concerned, Jefferies said it has been only marginally overweight India in the Asia Pacific ex-Japan relative-return portfolio this year since the base case at the start of 2022 was that India would underperform.
He expects the Indian market to consolidate in 2022 after the strong gains recorded last year and the commencement of a monetary tightening cycle.
The MSCI India has declined 5.8 per cent in dollar terms year-to-date compared with a 24 per cent decline in the MSCI China and a 18.5 per cent decline in the MSCI AC Asia Pacific ex-Japan Index.
Wood said the Indian market trades at 19.3 times earnings on a 12-month forward basis and has so far surprised everyone, including Greed and fear, by its resilience in the face of bearish sentiment triggered by the wave of foreign selling, prevailing high valuations and monetary tightening.
This resilience should be viewed as reflecting the strength of the structural story, Jefferies said while expecting 2022 to be the year of consolidation for domestic stocks.
“China Covid suppression and the Ukraine conflict have helped at the margin by keeping the price of oil lower than it otherwise would be while allowing India to buy Russian oil at a discounted price. Russian Urals crude oil is now selling at $18 below Brent, though down from a $35 discount in June,” it said.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)
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