Jefferies’ Chris Wood bets on higher India allocation

Jefferies’ Chris Wood bets on higher India allocation

By Ashley Coutinho

Christopher Wood, global head of equity strategy at Jefferies, has recommended a 16% weighting to India, 2.3 percentage points higher than the erstwhile 13.7%, in the brokerage’s Asia Pacific ex-Japan asset portfolio. China has the top weighting of 31.5%, followed by India, Taiwan (10.5%), Australia (9%) and Korea (9%).

Wood had been a bit skeptical about the recent rally in Indian equities in the backdrop of monetary tightening and high valuations. In a note last month, he had said that the stock market was poised for consolidation in 2022 after the strong gains posted last year and the commencement of a monetary tightening cycle.

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Wood’s Asia ex-Japan absolute-return long-only thematic equity portfolio has stocks such as Reliance Industries (6%), HDFC Bank (6%), ICICI Prudential Life Insurance (5%), ICICI Bank (5%), Godrej Properties (5%), Bajaj Finance (5%), ICICI Lombard General Insurance (4%) and L&T (4%).

Wood’s India long-only portfolio has names such as Reliance Industries (10%), ONGC (10%), HDFC Bank (8%) and ICICI Bank (7%). The India long-only equity portfolio has risen by 9.5% in the US dollar terms on a total-return basis since inception on July 1, 2021, compared with a 7.5% gain in the MSCI India Index and a 6.2% gain in the Nifty Index. It has outperformed the MSCI India and the Nifty indices by 1.9% and 3%, respectively since inception.

India’s gross GST collections rose by 20% year-on-year (y-o-y) to a record Rs 1.68 trillion in April and were up 28% y-o-y to Rs 1.44 trillion in August. GST collections have increased 33% y-o-y to Rs 7.46 trillion in the first five months of FY23 (April-August 2022). India bank credit growth has risen from 7.1% y-o-y in late January to 15.3% y-o-y in mid-August — the highest level since November 2013, according to Wood’s presentation made on Wednesday at the Jefferies Asia Forum.

Indian equities have bounced back smartly over the last two months, wiping out the entire decline in the year to date. The Nifty is now trading about 2% higher year-to-date and is strongly outperforming global markets. With this rally, the Nifty now trades at 21x FY23E EPS, comfortably above its long-period average.