Structural bull run intact in India: Wood

Even as authorities in China rush to cushion the fall of the Evergrande Group — their second largest property developer by sales — that can create a flutter across global financial markets, Christopher Wood, global head of equity strategy at Jefferies, suggests that the structural bull-market in India remains intact.

He has hiked stake in Bajaj Finance in his Asia ex-japan long-only portfolio by 1 percentage point (ppt). Wood had bought a stake in the company earlier this month.

“A broader based private sector-driven capital spending cycle, extending beyond the property sector, is now thought by Jefferies’ Indian office to be only a year away. A further positive is growing evidence of job generation. India also seems to be at a major inflection point in earnings, with corporate profits to gross domestic product (GDP) ratio bouncing off an all-time low of 1.2 per cent in FY20 to an estimated 2.1 per cent in FY21,” Wood wrote in GREED & fear, his weekly note to investors.

On Friday, the S&P BSE Sensex hit the 60,000-mark for the first time ever.

Analysts at Goldman Sachs expect capital flows to remain strong going ahead, given the robust initial public offering pipeline.

“We estimate $12 billion of passive buying from the potential inclusion of unicorns in MSCI India over the next two-three years. Strong investor demand and ensuing capital flows could keep equity valuations high, support the rupee and further catalyse financialisation of household savings,” wrote analysts at Goldman Sachs, led by Timothy Moe, their co-head of Asia macro research and chief Asia-pacific equity strategist in a recent note.

Risks to the rally

Aside from the risk of another Covid wave, the major domestic risk to the Indian stock market, according to Wood, is a change in the Reserve Bank of India’s (RBI’S) dovish policy, which he believes will only be gradual.

While the RBI has been raising its inflation forecast in recent meetings, it has yet to signal a change in policy stance. The RBI increased its CPI inflation forecast for this fiscal year to 5.7 per cent in its policy meeting in August, up from 5.1 per cent projected in June.

That apart, it had announced staggered increases in the quantum of funds to be taken out through variable rate reverse repos.

Ripple effect

Evergrande development, Wood said, will have a ripple effect on Wall Street-correlated world markets that have become used to bailouts.