Christo­pher Wood raises allocation in In­dian equities

Business Standard - - THE SMART INVESTOR - PUNEET WADHWA New Delhi, 16 Oc­to­ber

In his lat­est note to in­vestors, GREED & fear, Christo­pher Wood, global head (eq­uity strat­egy) at Jef­feries, said he has in­creased allocation to In­dian equities in his Asia Pa­cific ex-ja­pan rel­a­tive-re­turn port­fo­lio by one per­cent­age point and added two per­cent­age points to the ex­ist­ing in­vest­ment in HDFC in the Asia ex-ja­pan lon­gonly port­fo­lio.

Wood feels HDFC’S val­u­a­tion re­mains at­trac­tive at 2x 12-month for­ward ad­justed book, com­pared with a fiveyear av­er­age for­ward price-to­book (P/BV) ra­tio of 2.6x.

“The home fi­nanc­ing story is more straight­for­ward given the surge in af­ford­abil­ity cour­tesy of lower in­ter­est rates and the pro­longed cor­rec­tion in res­i­den­tial prop­erty prices. HDFC is the stand­out name in this re­gard and looks poised to take sig­nif­i­cant mar­ket share as more dis­tressed lenders in this space have been forced to cur­tail ac­tiv­i­ties, which is why GREED & fear has in­creased its weight­ing from 4 per cent of the Asia ex-ja­pan lon­gonly port­fo­lio to 6 per cent,” Wood wrote.

Among In­dian stocks, Wood also holds Re­liance In­dus­tries (RIL), Maruti Suzuki, SBI Life In­sur­ance, ICICI Lom­bard Gen­eral In­sur­ance, DLF, and Ci­pla in his Asia ex-ja­pan the­matic eq­uity port­fo­lio for long-only ab­so­lute-re­turn in­vestors.

An­a­lysts at Mor­gan Stan­ley are tread­ing with cau­tion on the fi­nan­cial sec­tor and sug­gest it could lose lead­er­ship sta­tus in a new bull­mar­ket, given an over-owned po­si­tion. “Non-banks face sig­nif­i­cant growth slow­down. We think a stim­u­lus pack­age is es­sen­tial, but the sec­tor ’s per­for­mance could nar­row to a hand­ful of strong banks. We are sell­ers of a rally in fi­nan­cials,” wrote Rid­ham De­sai, head of In­dia re­search and In­dia eq­uity strate­gist at Mor­gan Stan­ley, in a note coau­thored with Sheela Rathi.

Buy on dips

Mor­gan Stan­ley be­lieves re­cent pol­icy mea­sures of the gov­ern­ment will help at­tract for­eign flows into equities. How­ever, the mar­ket’s per­for­mance in the near-term is tied to global fac­tors, which they feel, will keep them choppy. In­dia, Mor­gan Stan­ley said, needs to con­tinue to de­liver pol­icy that lifts its po­ten­tial growth in of mar­ket par­tic­i­pants’ eyes.

From the lows of March, the Sen­sex and the Nifty50 have al­ready risen about 53 per cent each and have out­per­formed emerg­ing mar­kets (EMS) since April. “We re­main buy­ers of any cor­rec­tion that stocks may of­fer, as val­u­a­tions are at­trac­tive rel­a­tive to macro ag­gre­gates. The broad mar­ket will likely out­per­form, con­sis­tent with our theme that this is a stock picker ’s mar­ket. Pre­fer cycli­cals over de­fen­sives. The themes we like in­clude agricultur­e, man­u­fac­tur­ing and early cy­cle rate plays,” De­sai and Rathi said.

As their base case, they ex­pect the Sen­sex to be around 37,300 by June 2021, nearly 6.5 per cent lower than the cur­rent level. “Our June 2021 target im­plies a Sen­sex for­ward P/E mul­ti­ple of 17x and a trail­ing P/E of 23.6, a 15 per cent dis­count to the 25year trail­ing av­er­age of 19.7x, given that FY21 earn­ings are likely to be very de­pressed,” De­sai and Rathi wrote. In their bull (30 per cent prob­a­bil­ity) and bear case (20 per cent prob­a­bil­ity), De­sai and Rathi ex­pect the Sen­sex at 45,000 and 28,000 lev­els, re­spec­tively.

Source: GREED & fear, Wood's weekly note to in­vestors

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