Jefferies' Chris Wood cuts back on India exposure over Covid

However, despite Covid, Indian markets registered their best financial year performance in a decade, with the Sensex and Nifty50 rallying 68 per cent and 71 per cent, respectively, in FY21.

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

In December, he raised exposure to Indian equities twice and reiterated his bullish stance on cyclical sectors as economic indicators showed an improvement.

The latest move comes on the back of a rise in Covid cases across the country, which, says Wood, could dent economic recovery. Markets, he says, are not yet factoring in the spike and sporadic lockdowns that maybe imposed 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.

Wood has also moved the allocation in GREED & fear’s global sovereign bond portfolio from the 10-year Indian G-Secs to 15-year ones, where the yield is 6.71 per cent, which is 54 basis points higher than the 10-year G-Secs at 6.17 per cent. This, he said, will increase current running yield on the portfolio from 4.48 per cent to 4.59 per cent.

Despite Covid, Indian markets registered their best financial year performance in a decade, with the Sensex and Nifty50 rallying 68 per cent and 71 per cent, respectively, in FY21.

“Expeditious containment of cases and accelerated pace of vaccination will provide comfort for recovery in economic growth during FY22. Second, expectations for 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 a dampener,” says Gautam Duggad, head (institutional research at Motilal Oswal Financial Services.

Analysts at Nomura, too, have raised concerns. Since the second wave started only in the second half of March, Nomura says its estimate of 1 per cent YoY GDP growth in Q1 (January-March), up from 0.4 per cent in Q4 2020, is on track -- at least for now.

Less-stringent lockdown, vaccination-induced optimism and companies and consumers better aligned to work amid social distancing suggests the impact will be muted, Nomura said.