A fall in Indian stock mkt will be a buying opportunity: CLSA's Chris Wood

The rally in Indian equity markets thus far in calendar year 2018 (CY18) amid a weakening rupee has surprised CLSA’s Christopher Wood, their managing director and equity strategist. One reason why the Indian stock market has been so resilient, Wood says, is that India is primarily a domestic-driven economy and is less exposed to Trump-driven trade concerns. He believes a correction in the Indian equities will be a good buying opportunity.

“GREED & fear is surprised by the extent of Indian outperformance year-to-date (YTD) in Asian and emerging market context in US dollar terms. This is all the more impressive given that the rupee is down 9.5 per cent YTD,” Wood wrote in his weekly note to investors, GREED & fear.

Wood believes that the stock market’s resilience may be a sign that India is contra-cyclical in the sense that the economy is accelerating at a time when many other markets in Asia could be nearing their cyclical peak. That apart, the inflows into Indian domestic equity mutual funds is another reason for the stock market’s resilience this year, Wood says, and suggests that this now increasingly looks like it is a secular not a cyclical phenomenon.

“The Indian equity market’s resilience may be a signal that a new investment cycle is nearer at hand than the consensus thinks. This would mean that the stock market will be much more resilient to monetary tightening and a higher oil price than currently assumed. It would also mean that any correction will be a buying opportunity,” he says.

In India, Wood’s Asia ex-Japan long-only portfolio remains heavily geared into the housing finance and related property plays which have not been the main drivers of performance this year in the Indian stock market. Still, GREED & fear continues to believe that the property cycle is turning up in India.

The performance of housing finance and realty stocks has been a mixed bag thus far in CY18. While stocks like Gruh Finance and Dewan Housing have rallied around 35 per cent and 14 per cent respectively as compared to 14 per cent rise in the S&P BSE Sensex most, housing finance and realty stocks have underperformed, ACE Equity data shows. The S&P BSE Realty index has lost nearly 18 per cent in CY18.

Besides India, which Wood believes is a ‘buy on dips market’, he finds Pakistan’s equity market as an attractive investment destination and plans to add stocks from the country going ahead in his portfolio.

“Pakistani stock market valuation is about half the valuation of neighbouring India albeit with a much higher dividend yield. Pakistan is much more a value investor’s market, whereas India remains the classic growth investor story in emerging markets,” Wood said in an earlier note in August.

According to reports, CLSA plans to buy a 24.9 per cent stake in the securities unit of Bank Alfalah, backed by the World Bank's International Finance Corporation (IFC). This will be CLSA's first investment in Pakistan after nearly two decades.