Global funds, according to Christopher Wood, global head of equity strategy at Jefferies, are now beginning to pay more attention to India with the market now offering 30 companies with a market capitalisation over $25 billion.
As a result, Wood said, many global funds are now applying for registration as Foreign Portfolio Investors (FPIs) to invest directly in India, which, he believes, is not always as straightforward an exercise as it could be.
Meanwhile, any correction in the Indian stock markets should be used to buy property, banks and industrial stocks, he advised in his latest weekly note to investors, GREED & fear.
His India long-only portfolio has a 56 per cent allocation to these three sectors with stocks such as ICICI Bank, HDFC Bank, Axis Bank, State Bank of India, Godrej Properties, DLF, Century Textiles, Reliance Industries and ONGC among others.
"Dedicated emerging market (EM) investors remain much geared to the consumption story.
"They should be more positioned for the now commencing private-sector capex cycle.
"With the Indian market is still at risk of more of a near-term correction, this means they should be looking to add to property, banks and industrial stocks on any pullback in prices," Wood wrote.
Indian frontline indices, meanwhile, have corrected from their recent highs.
The S&P BSE Sensex and the Nifty 50 have lost 2.2 per cent and 2.1 per cent, respectively from their 52-week highs.
This comes in the backdrop of hawkish central bank policies, especially the US Federal Reserve (US Fed), volatile crude oil prices, geopolitical developments and rising bond yields.
Growth story
That said, India, Wood believes, could become the world's third largest economy by 2027.
By way of context, India’s gross domestic product (GDP) now, he said, is near where China’s was in 2007.
"This forecast is in the context of India’s still improving demographics.
"But India’s story is about much more than just positive demographics.
"The growth outlook is also enabled by India’s arguably unique digital infrastructure.
"There is also the huge upgrading of physical infrastructure since Modi came to power in 2014," he said.
The IMF’s base case of 6.3 per cent growth for the next five years for the Indian economy, Wood believes, seems conservative if the Narendra Modi-led National Democratic Alliance (NDA) can be elected for another five-year term in the general election due to be held next April-May.
“India’s growth potential remains hard to exaggerate, most particularly relative to other countries.
"If the recent positive trends are maintained, India can account for a significant percentage of global growth in the next 10 to 20 years.
"Global portfolios are in no way positioned for such an outcome,” he said.
A large part of this economic growth, according to him, will be export-led, especially from the services sector.
India's net exports of services have risen from $84 billion in 2020 to an annualised $152 billion in August 2023.
One aspect of this, according to Wood, is the growth in 'global capability centers’ (GCCs), where multinationals base their global IT operations out of India.
Revenues from this area, per his estimates, are now $46 billion compared with $195 billion for IT services.
"This is an area where globalisation is definitely not yet in retreat.
There is also the obvious potential for India to attract FDI in manufacturing, as multinationals from Apple down seek to diversify their production away from China to hedge escalating geopolitical tensions.
India’s big comparative advantage relative to other alternative destinations in Asia is that it will offer access to the next big domestic consumer market after China,” Wood said.
Photograph: Reuters
