Now that Narendra Modi has taken oath as the Prime Minister of India for the third straight term and the markets have recovered from the initial shock of BJP not securing a majority on its own, Chris Wood of Jefferies in his latest edition of the Greed & Fear report has made some changes to its India long-only portfolio.
Wood has introduced the Infrastructure theme in the portfolio with a 4 percent weightage. To accommodate the new inclusion, he has reduced weights in ICICI Bank and HDFC Bank by 1 percentage point each and Axis Bank by 2 percentage points. He has added GMR Airports to the India long-only portfolio.
In the previous Greed & Fear report, he reduced the weightage of PSU stocks in the India long-only portfolio amid concerns about Prime Minister Narendra Modi's ability to govern effectively in a potential coalition government during his third term. The weightage in State Bank of India (SBI), REC, and Coal India was decreased by one percentage point each. Simultaneously, he introduced an investment in PolicyBazaar with a 4 percent weightage.
Furthermore, in the Asia long-only portfolio as well, the Infra theme will be introduced by removing investment in HDFC Bank, and an investment is made in GMR Airports, he said in the latest report. Meanwhile, in his previous report, he had mentioned that for the Asia ex-Japan long-only portfolio, the investment in JSW Energy would be increased by one percentage point by reducing the investment in SBI.
Wood also predicted that investors might be tempted to tilt their portfolios more towards consumption plays rather than investment plays, anticipating that the new government will prioritise populist measures. Unlike the past decade, which saw a fiscal deficit driven by infrastructure spending, the focus may shift towards transfer payments. He highlighted the possibility of initiatives aimed specifically at revitalising the rural sector.
He had also pointed out that foreign investors, however, are likely to view any significant correction as an opportunity to increase their holdings. Due to India's recent outperformance and high valuations, especially in the mid-cap space, many dedicated emerging market investors are no longer overweight in the market.
FIIs have been net sellers of Indian stocks this year, selling around $4 billion in 2024 after buying a net of $21.4 billion in 2023. The India bull has warned that the mid-cap space faces the highest risk of further corrections, with the Nifty MidCap 100 index trading at 30.7x one-year forward earnings compared to 19.7x for the Nifty, Wood had said.
"Still GREED & fear’s long-only India portfolio is structural in nature and the base case here remains that India is in a property and capital spending upcycle which will continue," said the expert.
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