India is No.1 destination among BRIC nations: Christopher Wood

Mumbai: Christopher Wood, equity strategist at Hong Kong-based securities house CLSA Asia-Pacific Markets, says the landslide win for the Bharatiya Janata Party (BJP) in the general elections bodes well for India, and the Indian stock market. In an interview on 16 May, Wood said the clear mandate has given India’s prime minister in-waiting Narendra Modi a chance of effecting real change during his five-year tenure.

India is now best placed among the BRIC (Brazil, Russia, India and China) countries due to internal and external factors, argues Wood.

Edited excerpts:

How do you view the results and the BJP’s landslide victory?

I was already “double overweight” on India. I have raised the rating a little bit more today because the election outcome was better than the base case. I’ve been “double overweight” on India for the last six months or more on the growing likelihood, based on all the polls, that the BJP would win a decisive mandate, giving it a chance to have a reasonably effective government. It got an outright majority—that is unexpected—and this is extremely positive. In my view, it gives Modi a chance of effecting a real change in the course of a five-year government.

The thing of concern last year for many people, many investors, who visited India was that the election would result in a weak national government, which would be held hostage by the narrow interests of regional parties.

This is the best possible outcome you could imagine, and it is very important that it is a big, decisive majority because India is a federal structure and, therefore, chief ministers of individual states have significant power.

The good news is the message sent by the electorate, which should give Modi more leverage to try and drive his agenda.

I’m assuming that his agenda would be to generate jobs, and trying to and get an investment cycle going.

Is this the start of a bull run in the Indian markets?

The key issue I am looking at is: does the investment cycle resume in India? This will allow the economy to re-accelerate and the earnings growth to accelerate.

The one important thing that really matters for the stock market and economy is—will the investment cycle resume in India? If the investment cycle resumes in next one to two years, this will be the first leg of a new bull market in India. I, personally, am giving the benefit of doubt to the fact that an investment cycle will resume.

The other positive point is that even before the election, it was becoming clear that the downturn from the previous investment cycle was bottoming out. The other positive point in the past year is that under the new leadership of the RBI (Reserve Bank of India), the currency stabilized.

Do you think that the expectations from Modi are too high?

It is too early to think about that. There are huge expectations, but the interesting thing is the size of the majority.

First of all, it is clear that Modi ran a very effective campaign at the national level. A year ago, the conventional wisdom of pundits was that Modi would not have a national appeal, and that has obviously been proven wrong.

My guess is that there are a lot of younger voters who voted for Modi, who were attracted by his desire to accelerate economic growth and investments. These younger voters were not necessarily voting for subsidies, which has been a traditional feature of Indian politics. The government that has just lost the election introduced a lot of subsidies, make-work schemes which put money into people’s pockets in rural areas, but you know those policies didn't come around and didn't deliver the victory.

Is the worst over for the Indian economy?

I would’ve argued that even before this election results that the Indian economy is bottoming out. I think it was bottoming out anyway. I just think that chances of a pick-up have increased by the confidence generated by the results.

In the emerging markets space, where does India stand?

I would think India is looking extremely attractive in the emerging markets space at large. The reason is, India is not geared into the China story. The Chinese economy is slowing, China is getting into a difficult structural adjustment. So, emerging markets that are geared to the commodity cycle are facing a negative structural headwind and India is not geared into that side of story.

I would say among the BRIC (Brazil, Russia, India and China) markets, India would rank best right now. It’s No.1 among them.

India is enjoying a huge premium over other emerging markets at this time. Do you think this premium is justified or this rally could lose steam over a period of time?

It could, but for now I am going to continue to give it a benefit of doubt. I am not selling on the event.

What is your outlook on interest rates in India?

I am not expecting any dramatic moves in interest rates in India. I am hoping that we have seen the worst of inflation in India.

What are your favourite sectors/stocks?

The biggest sector holding in my long-only portfolio is private-sector banks. In my current Asian portfolio, I have got IndusInd Bank, ICICI Bank, HDFC Bank, Housing Development Finance Corporation, Gruh Finance. The biggest sector in my Asian portfolio is Indian banks. Around 20% of that portfolio is Indian banks.