Greed & Fear: Global funds now paying more attention to India, says Wood; remains bullish on growth

Global funds are now beginning to pay more attention to Indian market, said Christopher Wood, global head of equity strategy at Jefferies, in his latest Greed & Fear report. This is because the market now has 30 companies with a market capitalisation of over $25 billion, it informed.

As a result, many global funds are now applying for registration as Foreign Portfolio Investors (FPIs) to invest directly in India, Wood noted, which, according to him, is not always as straightforward an exercise as it could be.

However, he advised investors that any correction in the Indian stock market should be used to buy property, banks and industrial stocks.

"Dedicated emerging market (EM) investors remain much geared to the consumption story. They should be more positioned for the now commencing private-sector capex cycle. With the Indian market is still at risk of more of a near-term correction, this means they should be looking to add to property, banks and industrial stocks on any pullback in prices," Wood wrote.

The report also highlighted that Wood's India long-only portfolio has a 56 percent allocation to three sectors - property, banks and industrial. It lists stocks including ICICI Bank, HDFC Bank, Axis Bank, State Bank of India, Godrej Properties, DLF, Century Textiles, Reliance Industries and ONGC among others in portfolio.

However, the Indian market has now corrected around 3 percent from the peak hit on September 15 on the back of rising bond yields, inflation and crude oil prices, leading to caution amidst investors. Meanwhile, geopolitical conflicts, the weak outlook of IT firms and FII selling are also contributing to the weak sentiments.

Despite the recent consolidations in the Indian market, Wood believes, India could become the world's third-largest economy by 2027. India’s gross domestic product (GDP) now is near where China’s was in 2007, he pointed out.

"This forecast is in the context of India’s still improving demographics. But India’s story is about much more than just positive demographics. The growth outlook is also enabled by India’s arguably unique digital infrastructure. There is also the huge upgrading of physical infrastructure since Modi came to power in 2014," he stated.

He further noted that the IMF’s base case of 6.3 percent growth for the next five years for the Indian economy seems conservative if the Narendra Modi-led National Democratic Alliance (NDA) can be elected for another five-year term in the general election due to be held next April-May.

“India’s growth potential remains hard to exaggerate, most particularly relative to other countries. If the recent positive trends are maintained, India can account for a significant percentage of global growth in the next 10 to 20 years. Global portfolios are in no way positioned for such an outcome,” he highlighted.

He further added that a large part of this economic growth will be export-led, especially from the services sector.

"India's net exports of services have risen from $84 billion in 2020 to an annualised $152 billion in August 2023. One aspect of this is the growth in 'global capability centers’ (GCCs), where multinationals base their global IT operations out of India. Revenues from this area are now $46 billion compared with $195 billion for IT services. This is an area where globalisation is definitely not yet in retreat. There is also the obvious potential for India to attract FDI in manufacturing, as multinationals from Apple down seek to diversify their production away from China to hedge escalating geopolitical tensions. India’s big comparative advantage relative to other alternative destinations in Asia is that it will offer access to the next big domestic consumer market after China,” Wood explained.

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