Why Chris Wood sees 7% real GDP growth and 12-15% earnings growth going forward; lists 3 achievements of PM Modi
Chris Wood of Jefferies, in his latest Greed and Fear report said that fundamental structural reforms have changed India’s macroeconomic factors, which makes the country the best equity story in the world.
Chris Wood of Jefferies, in his latest Greed and Fear report said that fundamental structural reforms have changed India’s macroeconomic factors, which makes the country the best equity story in the world. This was not the case earlier but now India's macros are as good as any other country, noted Wood.
Quoting a statement from a 21-year-old note, Wood said, “The bottom-up appeal of India has always been severely diluted by the lack of a compelling top-down story. In a sense the country has been the inverse of China, the ultimate macro story but without the compelling micro options.”
"During the two five-year terms of Prime Minister Narendra Modi’s NDA government, India has seen fundamental structural reform which has created the framework for the country to realise its full potential in terms of taking advantage of its intellectual and physical capital as well as its positive demographics," explained Wood in the report.
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Listing three achievements of the PM Modi government in these 2 terms, Wood cited-
1) Massive government-funded investment in infrastructure which has been game-changing in terms of improving the overall logistical efficiencies of the economy.
2) The passage of the Insolvency and Bankruptcy Act of 2016 which means that Indian “promoters” now know they risk losing their assets if they default on loans.
3) The long overdue reform of the residential property market as a result of the Real Estate (Regulation and Development) Act of 2016 which means the property market, three years into an upturn after a seven-year downturn, is now delivering its full potential in terms of the resulting multiplier effects for the economy at large.
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This is why it is quite realistic to project 7 percent real GDP growth and 12-15 percent earnings growth going forward, argued Wood.
He also pointed out that the increased profile of India on the global stage also reflects the marketing skills of Prime Minister Narendra Modi, as reflected in the widely acknowledged success of the G20 Summit held in Delhi last September.
In a world of rising geo-political tensions, India has deftly managed to maintain a foot in both camps, remaining on good terms with the Washington-dominated G7 while also being a fully signed-up member of BRICS. Meanwhile, with a general election pending in April-May this year, Modi’s goal will be to win a record number of seats for his BJP party, he noted.
In the last general election in 2019, the BJP won 303 seats in the Lok Sabha, up from 282 in 2014. Modi has set a target of 370 seats for the BJP and 400+ for the BJP-led alliance (NDA) in the upcoming national elections. Such an electoral outcome is no longer far-fetched. As for the Congress Party, the dominant political party in India since independence in 1947, it faces an existential crisis, said the expert.
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Indian Stock Markets
Wood noted that the Indian stock market is now primarily driven by domestic flows not, as was the case 21 years ago, by foreign flows. The bottom-up story remains as dynamic as ever with a flourishing start-up scene and a booming local asset management industry, he added.
"The remarkable point now is how little foreign investors are invested in Indian equities. Global equity funds are barely invested in India at all even though it is now consensus, as highlighted by headlines coming out of the Davos gathering this year, that India is the world’s next big growth story. This lack of exposure to India by global investors is, frankly, absurd," opined Wood.
Read here: Greed and Fear index: Chris Wood adds Airtel, reduces weights in RIL, HDFC Bank
Remembering history, the expert reminisced that almost 21 years ago when the Nifty Index was 1,031, or 95 percent below its current levels; India was viewed as the tortoise and then booming China as the hare borrowing the analogy of the famous children’s story. The Indian economy back in 2003 was then at the beginning of a private sector-led capex cycle with the net debt to equity of Sensex-listed companies at only 17 percent, down from the previous peak of 37 percent reached in 1997. That cycle ran for 11 years and led to MSCI India outperforming the MSCI AC World by 460 percent in US dollar terms during that period.
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Business NewsEconomyWhy Chris Wood sees 7% real GDP growth and 12-15% earnings growth going forward; lists 3 achievements of PM Modi
First Published:22 Feb 2024, 03:00 PM IST
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