Christopher Wood: CLSA increasing India weightage in Asia Pacific ex-Japan portfolio
Mumbai: Christopher Wood, managing director of CLSA Ltd, on Thursday said he is increasing India’s weightage in the Asia Pacific ex-Japan relative-return portfolio by two percentage points, bringing India back to the structural three times overweight position.
The move was triggered by the government’s bank recapitalisation plan. The finance ministry on Tuesday announced a Rs2.11 trillion bank recapitalisation plan for state-owned lenders weighed down by bad loans, seeking to stimulate the flow of credit to spur private investment.
“The failure to address the banking sector issue more proactively has been the one major piece of unfinished business in the Modi administration,” Wood said in his newsletter Greed and Fear on Thursday. “That vacuum should now be filled, which means it is now realistic to look forward to a new credit and investment cycle.”
Out of the total bank recapitalisation commitment, Rs1.35 trillion will come from the sale of so-called recapitalisation bonds. The remaining Rs76,000 crore will be through budgetary allocation and fundraising from the markets.
However, Wood said that since the share prices of state-owned banks already jumped after the bank recapitalisation announcement, he is not going to add public sector banks to the Asia ex-Japan long-only portfolio since a lot has already been discounted given such violent share price movement.
“It is a positive that both the rupee and the Indian government bond market have barely reacted to this week’s announcement despite the increased burden on the government,” Wood said in the newsletter.
He was concerned that it remains unclear whether the recapitalisation bonds to be issued under the proposal will be included in the formal fiscal deficit.