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Chris Wood trims India exposure as Covid cases rise

Chris Wood
Christopher Wood, global head of equity strategy at Jefferies has trimmed his ‘overweight’ exposure to India in his Asia Pacific ex-Japan relative-return portfolio by 2 percentage points (ppt). Weight in Singapore and Taiwan in the above-mentioned portfolio has been increased by 1 ppt each.

Earlier in December 2020, he raised exposure to Indian equities twice in this and reiterated his bullish on cyclical sectors as economic indicators showed improvement.

The latest move comes on the back of rising COVID cases across the country, which Wood feels, could dent the economic recovery. The markets, he says, are not yet factoring in the spike and the sporadic lockdowns across key cities.

“Covid cases in India continue to surge even as the weather turns warmer in the north of the country. This is obviously a risk to the cyclical trade in India, most particularly as stocks are not priced for renewed lockdowns,” Wood wrote in his weekly note to investors, GREED & fear.

Chris Wood's Asia exposure
Wood has also moved the allocation in GREED & fear’s global sovereign bond portfolio from the 10-year to the 15-year Indian government bond where the yield is 6.71 per cent, 54 basis points (bps) higher than the 10-year at 6.17 per cent. This move, he said, will increase the current running yield on the portfolio from 4.48 per cent to 4.59 per cent.

Despite the pandemic, Indian markets registered their best financial year performance in a decade with the S&P BSE Sensex and the Nifty50 rallying 68 per cent and 71 per cent, respectively in FY21. Going ahead, the pace of vaccination and how corporate earnings play out will guide markets, analysts say. 

“Expeditious containment of Covid19 cases and accelerated pace of vaccination will provide comfort for FY22 economic growth recovery. Secondly, the expectations for fiscal 2021-22 (FY22) earnings are running high at over 30 per cent growth in Nifty FY22E EPS. Given the rich valuations, any misses on FY22 earnings delivery may act as dampener,” says Gautam Duggad, head of institutional research at Motilal Oswal Financial Services.

Economic growth

Besides Wood, analysts at Nomura, too, have raised concerns regarding the impact of the second wave of the pandemic sweeping across India, which they feel can impact the economic growth momentum over the long run.

ALSO READ: Be prepared for a volatile phase as risks to markets on a rise

Since the second wave started only in the second-half of March, Nomura believes that their estimate of 1 per cent y-o-y GDP growth in Q1 (January-March), up from 0.4 per cent in Q4, is on track – at least for now. Less-stringent lockdowns, ongoing vaccine optimism and companies and consumers better realigned to work amid social distancing suggests the economic impact of the second wave will be muted compared to the first wave, Nomura said.

“However, if the second wave worsens, as is looking likely, sequential momentum in Q2 (April-June) would then likely be weaker and it could lower Q2 gross domestic product (GDP) growth to 32.5 per cent y-o-y (versus 34.5 per cent in our baseline) and FY22 to 12.2 per cent (versus 13.5 per cent in our baseline), still above the Reserve Bank of India's (RBI’s) projection (10.5 per cent),” wrote Sonal Varma, managing director and chief India economist at Nomura, in a April 1 co-authored note with Aurodeep Nandi.

ALSO READ: Analysts bet on defensive sectors amid rising inflation concerns

Given the developments, most economists expect the RBI’s monetary policy committee (MPC) to hold rates steady in the upcoming policy review scheduled between April 5 to April 7. 

Chris Wood's bond portfolio

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