Christopher Wood: I have doubts about the march in the United States and India: Christopher Wood

Christopher Wood, global head of equity strategy at Jefferies, says the recent rally in equities is more than that of a bear market in the US, which is dragging down Indian stocks. In an interview with Sanam Mirchandani, Wood said that India is not among the best investment destinations at the moment. Edited excerpts:

What is your assessment of the rise of the Indian markets?

My view is that it is a bear market rally in the US. The reason you are skeptical about the rally in America is that you have a double whammy – tightening of high interest rates and shrinking balance sheets – which is negative for liquidity. The rally was driven by hopes that inflation pressures had peaked. Inflation may have peaked but the main issue is whether inflation has stabilized. The real issue is whether the Fed will try to hit its 2% target. India follows the United States only. I am skeptical about this march in the United States and India. The rally in India is closely related to the rally on Wall Street. India’s oil correction also helped. Personally, I remain optimistic about oil. I want to continue to have a stock of energy. I have not changed my view on India. The main issue here in India is how much the prices go up and how much the rupee goes down.

Is the Fed likely to keep raising interest rates aggressively?

The Fed is talking optimism but at the end of the day, I’m skeptical that they will stick to the 2% target. I suspect inflation is 4% or 5% in America at the end of this year. The issue of inflation in America or Europe is much bigger than it is in India.

Is the worst selling of foreign investors in Indian stocks over?

They didn’t buy much compared to what they sold. One of the reasons foreigners were selling so much in India earlier this year was that they were putting more money in China. China was easing its policy and India was toughening, so China looked more attractive. But in recent months, the investment story in the Chinese economy has been hit hard by the ongoing policy of suppressing the coronavirus. This has made investors less positive towards China.

Where are oil prices headed?

By the end of the year, I see oil prices go up. The main reason for the lack of oil prices is weak demand from China, which is related to the policy of suppressing COVID. The policy of suppressing COVID is negative for China, but positive for the Indian economy and the Indian market. I remain structurally optimistic about oil due to the lack of supply. Another good news for India is cheaper Russian oil. The COVID suppression policy has caused a significant slowdown in the Chinese economy and weakened Chinese consumer confidence resulting in lower energy demand.

Where is India in your list of investment destinations?

This year, India is not the best market, due to the monetary tightening cycle. The best performing market, when it materialized most recently, in Asia was Indonesia. My biggest weight gain in Asia this calendar year so far has been Indonesia. India is fine, but India has a lot of cross currents. From a 10-year point of view, India is my preferred bet but not in 2022. The Reserve Bank of India (RBI) is shrinking. It was behind the curve, but it wasn’t as bad as it was. I still think the oil is going up. I am overweight in India, but not significantly, just a little overweight. India has fared better than I expected at the beginning of the year due to geopolitical factors, the most important of which is China’s policy of suppressing COVID. If China did not have a policy of suppressing COVID, the Chinese stock market would do much better and India would be weak.

For India, the important thing is what the Reserve Bank of India does. The interesting point about India this year is the resilience of the stock market given the huge amount of foreign selling. In the long run one should remain invested in India but certainly the risk of correction is on the rise. What the RBI does is important.

What is your view of the rupee?
The Indian currency will be at risk as long as there is constant tightening. So, the good news is that the Reserve Bank of India was well behind the curve at the beginning of this year. I have become less nervous about the Indian currency in the past few months because the Reserve Bank of India has started raising interest rates. I was more nervous in January and February before we had an increase in meetings. The issue of inflation in India is more acute than in China or Indonesia, for example. So, that’s why India’s currency was weaker.

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