As regards India, Wood remains concerned that the lockdown in the economy continues, which in turn, will impact the consumer lending cycle. “GREED & fear
repeats the point that in countries such as India, with young demographics, such a lockdown causes more human suffering that Covid-19 itself. This continuing lockdown is, unfortunately, making it ever more inevitable that India will suffer a consumer lending cycle. There is also a growing risk of increased forbearance on local lenders, as there is for lenders everywhere,” he said.
As an investment strategy, Wood has rejigged his exposure to Indian stocks in his Asia ex-Japan long-only portfolio with HDFC Bank and ICICI Bank paving the way for Kotak Bank and Cipla.
“HDFC Bank and ICICI Bank will be removed from the portfolio while an initial three percentage point weighting will be introduced in Kotak Bank. This reduces the exposure of the portfolio in Indian private sector banks from eight percentage points to three. India has not really had a negative consumer credit cycle during this period. That is now probably about to change. For reasons of sentiment more than logic, GREED & fear
will maintain one bank. But this will be the bank which has the best history of growing through past negative credit cycles and, in an interesting move, approved raising equity capital (subject to approvals) presumably to prepare for troubled times ahead," Wood wrote.
Exposure to HDFC Life Insurance has also been done away with, which has reduced the exposure of his Asia ex-Japan long-only portfolio to Indian non-bank financials from 18 percentage points (ppt) to 14 ppt.
“One new investment will be introduced in India. This is a 4 per cent weighting in pharmaceutical company Cipla, a manufacturer of GREED & fear’s favoured hydroxychloroquine among other drugs,” Wood said.
Hikes exposure to RIL
Wood also remains bullish on Reliance Industries Limited (RIL), especially after the deal with Facebook and has added an additional one percentage point exposure to the Mukesh Ambani-controlled firm.
“The main reason to be happy is that GREED & fear’s Asia ex-Japan long-only portfolio has a 5 per cent investment in RIL
and that position is held primarily as an ecommerce play not as an oil refining play. RIL
is now 12.7 per cent of the MSCI India Index and 13.9 per cent of the Sensex, which means that passive funds have to keep buying it, and active managers will be under renewed growing pressure not to be underweight the stock as many of them are,” Wood wrote.
He, however, still believes that India remains a great long-term domestic demand story, which is why Facebook founder Mark Zuckerberg wants to be more involved. Zuckerberg, he says, is undoubtedly right to link up with a connected party rather than trying to compete head on with the locals as Amazon has been trying.