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Hong Kong-headquartered brokerage CLSA Asia Pacific Markets’ managing director and chief strategist Christopher Wood has reduced his overweight position on India.
In his weekly newsletter Greed and Fear, Woods, a widely-followed equity strategist credited with predicting the sub-prime crisis of 2007-08, stated he was reducing the weightage to India in his portfolio of holdings from the Asia-Pacific region, excluding Japan. Wood cut India’s weightage by two percentage points, owing to various drawbacks, including a feeling Budget 2013-14 wasn’t enough to encourage reforms and weak gross domestic product (GDP) data, according to a recent report.
“Still, the overweight will be maintained, primarily because India has more room to cut rates than anywhere else in Asia, but also because of the lack of alternatives… For now, the two percentage points reduced from India will be added to Indonesia and the Philippines,” the report said. (TAKING A TOLL)
What the Union Budget did was “far from the major endorsement of reforms that investors would have wanted to see”, noted the report.
“A clear commitment to the long-awaited Goods and Services Tax was conspicuous by its absence. True, the prospective fiscal deficit of 4.8 per cent of GDP for FY14 beginning April 1 is relatively modest by Indian standards. Still, the real test of last week’s Budget will be the government’s commitment to stick to its fiscal target with a general election due to be held by May 2014,” he said.
It added GDP growth was the slowest in about three years. For the quarter-ended December, GDP growth stood at 4.5 per cent, compared to the year-ago period. “The only consolation from the negative growth data is this, at least in theory, increases the chances of inflationary pressures subsiding. Therefore, RBI (Reserve Bank of India) will have room for more rate cuts,” the report said.
CLSA predicts RBI would cut the policy rate by 75 basis points by the end of this financial year.
The brokerage has 10 per cent weightage on India in its Asia-Pacific (ex-Japan) portfolio. This makes India the country with the fourth-highest allocation, ahead of the Philippines and Thailand. At 19 per cent, China has the highest weightage. While Korea has 14 per cent weightage, Australia has 12 per cent.
CLSA’s rating for India is higher than that given by the widely-tracked MSCI (6.3 per cent).
In the week ended Friday, Indian markets saw their best performance in six weeks. Today, the BSE Sensex closed at 19,646.21, a fall 0.19 per cent. The National Stock Exchange’s (NSE) Nifty closed at 5,942.35.
“There will also be an adjustment in the Asia ex-Japan long-only portfolio. The investment in State Bank of India will be removed and replaced by an investment in Nestle India,” the report said. Today, the State Bank of India stock fell 0.2 per cent to close at Rs 2,205 on the NSE. Nestle fell 0.71 per cent to Rs 4,735.
Today, foreign institutional investors (FIIs) were net buyers by Rs 988.22 crore, according to provisional exchange data. FIIs have been net buyers for six consecutive sessions.
