Greed and Fear index: Chris Wood adds Bharti Airtel, reduces weights in RIL, HDFC Bank; check latest changes

The Indian market has shed around 0.3 percent in February amid a lack of cues so far post the Interim Budget and as RBI held rates (as expected).

Chris Wood, in his latest, Greed and Fear report post the budget stated that it is a testament to the confidence of Indian Prime Minister Narendra Modi ahead of the pending general election in April-May that his government announced a budget on 1 February that is almost devoid of vote-buying populism.

"This is a pleasant surprise to Greed and Fear. The government capex is now budgeted to increase by 17 percent in FY25 beginning 1 April following an estimated 28 percent growth this fiscal year, while the fiscal deficit is projected to decline from 5.8 percent of GDP this fiscal year to 5.1 percent in FY25, compared with market expectations of 5.3 percent. The finance minister also mentioned that the FY26 fiscal deficit target is below 4.5 percent," noted the report.

Read here: Why should you include debt instruments in your portfolios?

It further pointed out that the budget has caused the brokerage to increase further the investment in Larsen & Toubro in its portfolio.

Meanwhile, Greed and Fear already has a 6 percent weightage in that stock in the India long-only portfolio and a 5 percent position in the Asia ex-Japan long-only portfolio, it added.

The report further highlighted that it has been an ongoing feature of Modi’s government that the fiscal deficits have been used mainly to finance infrastructure investments rather than transfer payments.

The other point about the budget is that the government, as regards the disinvestment/privatisation agenda, signaled that the focus will be on “value creation” in public sector companies, mentioned the report.

Read here: FPIs continue Jan's selling streak, offload ₹3,075 crore in Indian equities

"In our view, this is a reason for investors to pay more attention to a cheaper part of the Indian market, namely SOEs (State-Owned Enterprises)," added Wood.

Portfolio Changes

The Greed and Fear index has seen changes in its India long-only portfolio and the global long-only portfolio.

An investment in Bharti Airtel will be introduced in the India long-only portfolio with a 3 percent weight. This will be paid for by shaving the investment in Reliance Industries by three percentage points, informed the report.

Read here: Beyond buy and hold: Is rotating stocks the secret weapon for portfolio growth?

Also, the investment in HDFC Bank will also be reduced by two percentage points, while the investments in Axis Bank and State Bank of India will be increased by one percentage point each, it added.

As for the global long-only portfolio, the investment in HDFC Bank will be reduced by two percentage points while the investments in Axis Bank and TSMC will be increased by one percentage point each, further stated the report.

Global Markets

The report pointed out that the top five stocks in the S&P500 are now valued at 3.4x the entire Russell 2000 market capitalisation while trading at a median 7.7x sales. The top five stocks also now account for more than 25 percent of the S&P500, the highest weight in the history of the data set that began in 1999, it added.

"If the base case of the consensus of a US soft landing proves correct, then there is considerable potential for small caps to outperform as the stock market broadens out. But that is not Greed and Fear’s base case. Still Greed and Fear continues to believe that the stock market best positioned for those who believe in a US soft landing is Japan’s. In this respect, last Friday’s US job data will have supported the case for those arguing on the BoJ’s policy board for a normalisation of Japanese monetary policy sooner rather than later. In our view, there is certainly now a higher likelihood of the BoJ ending negative rates at its March meeting on 18-19 March than of the Fed cutting rates then," Wood believes.

Read here: Investing in India? Options and regulations for foreign investors

It further predicted that Greed and Fear’s base case has been that the ECB and the Bank of England would make any move on interest rates after the Fed, most likely one meeting after.

"The Eurozone economy grew by just 0.1 percent YoY in Q4FY23 compared with 3.1 percent YoY real GDP growth in the US. Still, from a monetary policy perspective, the ECB has only one mandate, namely inflation not, as is the case with the Fed, full employment. But the ECB has another unofficial target, namely monitoring Italian spreads. On that point, the spread between the 10-year Italian BTP yield and the 10-year bund yield, at 156bp, is well below the 250bp level where the ECB starts to get concerned. This narrowing spread reflects the previously discussed market assumption, for now still correct, that the direction of travel in the Eurozone remains towards de facto fiscal union," explained Wood.

Still, the potential for rising concerns about a right-wing populist wave in the forthcoming European parliamentary elections, as previously discussed, could just trigger a more pro-active approach to rate cuts on the part of the ECB, he added.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision