Chris Wood says the Indian stock market’s resilience has surprised: Know why

Chris Wood said in his weekly Greed & Fear newsletter that “The reality is that the Indian market has so far surprised everyone, including GREED & fear, by its resilience in the face of bearish sentiment triggered by the wave of foreign selling, prevailing high valuations and monetary tightening. Still GREED & fear is going to stick with the structural story in terms of the Indian portfolio exposures since these are long-term portfolios not tactical benchmark tracking exercises. Affordability measures for Indian homebuyers are also much better than for most countries.”

For a time now, Wood has been positive in India. In his Asia (excluding Japan) long-only portfolio, he has assigned the nation the highest 40% exposure. Wood claimed that domestic markets had shocked everyone, despite his prediction that India will underperform at the commencement of the year. Despite a cautious stance adopted by Mahesh Nandurkar, head of India research at Jefferies, Chris Wood has maintained his position with 61 per cent of the financial and real estate stocks in the India portfolio. According to Wood, Nandurkar continues to be tactically cautious in the market due to high valuations.

“The market is on 19.3x earnings on a 12-month forward basis. Still, the reality is that the Indian market has so far surprised everyone, including GREED & fear, by its resilience in the face of bearish sentiment triggered by the wave of foreign selling, prevailing high valuations and monetary tightening. In this respect, GREED & fear’s impression when in Mumbai in April is that everyone was waiting for a correction,” added Wood.

Since mid-June, the Nifty Index has recovered by 16.5%, while since late June, the MSCI India Index has outperformed the MSCI AC Asia Pacific ex-Japan Index by 16.5%. In the past six weeks, foreigners have also become net buyers of equities again, spending a total of $7.64 billion since mid-July after selling a total of $29.7 billion worth of Indian equities in the first six and a half months of the year, according to Wood.

“This resilience should be viewed as reflecting the strength of the structural story. Meanwhile, China Covid suppression and the Ukraine conflict have also 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,” he further added. Chris Wood stated that while India continues to be “by far the best structural story in Asia,” the resilience displayed by domestic markets should be seen as indicating the robustness of the structural story.

“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,” the report says.

“The main reason GREED & fear remains relatively relaxed about the impact of monetary tightening on growth is continuing evidence of an upturn in the residential property market. In this respect, India 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,”: said Wood.

“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 weekly Greed & Fear newsletter said.

In July, India’s GST revenues reached ₹1.49 trillion, the second-highest amount ever, up 28% on a year-over-year basis. There are further reasons to be bullish about India in the financial industry. “Further evidence of economic resilience and animal spirits is continuing strong GST revenues and buoyant retail sales,” Wood said. Overall, for the eight listed banks that Jefferies Indian covers, loan growth increased from 14% on a year-over-year basis in the January-March quarter to 18% on a year-over-year basis in the April-June quarter. The same banks’ gross NPL ratio decreased from 5.8% a year ago to 4.2% in the first quarter. According to Wood, the industrial sector benefited from the most recent results period. “Meanwhile the latest quarterly bank results showed a benign combination of rising credit growth and declining NPLs,” he said.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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