Chris Wood’s Insights: Bargain Hunting in India Amid Caution
Chris Wood of Jefferies is exploring investment opportunities in India, despite caution regarding potential risks like redemptions. He reports ongoing inflows from domestic institutional investors but warns of risks linked to year-on-year losses. He also identifies the impact of dollar fluctuations on market health and recognizes shifts in investment towards China. Resilience among domestic investors remains a key focus, as does the growth potential in certain sectors of the Indian economy.
Chris Wood, the global head of equity strategy at Jefferies, is currently examining investment opportunities in India, although he remains wary of potential risks such as investor redemptions. Despite a recent decline in market prices, he has been engaging with mutual fund companies to assess the continuity of domestic institutional investment. Wood expressed optimism, indicating that there are no immediate signs of redemption, but he highlighted concerns over year-on-year portfolio losses which could trigger sell-offs.
In his latest ‘Greed and Fear’ report, Wood delineates the cyclical slowdown in the Indian market attributed largely to the Reserve Bank of India’s (RBI) tightening monetary policies. He believes that while corporate earnings have weakened, this is a temporary phase rather than an indication of a structural downturn. Furthermore, Wood has observed a significant correction in Indian equities but worries about external factors, particularly fluctuations in the US market and the strength of the dollar, which could negatively impact all emerging markets.
As foreign investors pivot towards China, Wood notes a shift in investment patterns, with increasing allocations to China amid reduced exposure to India. He cautions that while domestic mutual funds have shown resilience in purchasing Indian equities, future inflows remain uncertain, particularly if investors start to register losses. Wood emphasized the critical nature of dollar movements on the Indian market’s health, speculating a potential easing from the RBI if the dollar peaks.
Moreover, Wood identified the domestic consumer sector and non-banking financial companies (NBFCs) as sectors likely to spur growth amidst the current downturn. Despite selling pressure in India, he sees Brazil as an attractive emerging market due to its favorable valuations. Wood anticipates that midcap stocks converging with blue-chip valuations may incentivize Foreign Institutional Investors (FIIs) to return to the Indian market.
Finally, while concerns regarding substantial cash holdings among portfolio managers and potential future redemptions loom, Wood remains hopeful about the resilience of domestic investors. He believes that significant redemption pressures may arise if the market fails to recover within three months, leading to potential year-on-year losses in investment portfolios.
Chris Wood maintains a cautious yet optimistic view on Indian equities, emphasizing potential investment opportunities while acknowledging external risks and the crucial role of domestic inflows. His insights highlight the ongoing transitions in market behavior influenced by external conditions and investor sentiment. He advocates for a balanced perspective, prioritizing investment in growing sectors while remaining vigilant about market corrections and investor responses.
Original Source: www.livemint.com
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