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PSB stocks are factoring in most positives: CLSA's Chris Wood

Wood said that the failure to address banking sector issue more proactively has been the one major piece of unfinished business in the Narendra Modi-administration

Puneet Wadhwa  |  New Delhi 

Christopher Wood
Christopher Wood

Despite the government's Rs 2.11-lakh crore package for public sector (PSBs), Christopher Wood, managing director and equity strategist at chose not to add these stocks to his portfolio citing the runaway rally in these stocks. He, however, says that the step is in the right direction and will go a long way in meeting the capital requirement of these cash-starved PSBs.

Also Read: PSU bank recapitalisation: Analysts concerned about budgetary support

"What GREED & fear has long been waiting for has finally happened in India. That is the announcement by India's Ministry of Finance on Tuesday of a proposed of the banking system over the next two years. The sum allocated is sufficient to meet the public sector banks' requirements," Wood wrote in his weekly note to investors.

Adding: "Unsurprisingly, the share prices of the public sector have soared on the as relative-return fund managers have sought to protect themselves against the trade out of 'growth' to 'value'. Still GREED & fear is not going to add public sector to the Asia ex-Japan long-only portfolio today, since a lot has already been discounted given such violent share price moves."

Also Read: Bank reforms make India best equity story in emerging markets: Chris Wood

Since the announcement on October 24, the has rallied nearly 29%, as compared to 1.3% rise in the benchmark Nifty50 index, ACE Equity data show. The rally in individual stocks has been sharper with Punjab National Bank (up 54%), Union Bank of India (42%), Bank of India (37%), Canara Bank (33%), Bank of Baroda (30%) and State Bank of India (26%) topping the charts during this period, ACE Equity data show.

The failure to address the banking sector issue more proactively has been the one major piece of unfinished business in the Modi administration, Wood says. The vacuum should now be filled, which means it is now realistic to look forward to a new credit and investment cycle, he believes.

Also Read: Mutual fund flows into equities are at a risk: Chris Wood of CLSA

As an investment strategy, Wood plans to increase India's weightage in the Asia Pacific ex-Japan relative-return portfolio by 2 percentage points (ppt), which brings India back to the structural three times overweight position. This will be paid for by reducing the weighting in Korea by 2ppt, a move party influenced by the downgrade of Hynix last week given the statistical reality that Korea's outperformance in the first three quarters of this year has been primarily driven by Samsung Electronics and Hynix.

 

First Published: Sat, October 28 2017. 22:03 IST
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