Use every Fed-linked correction to buy: Christopher Wood

Any correction in global markets as a result of the US Federal Reserve‘s monetary policy action should be used as an opportunity to buy into Indian equities, said Christopher Wood, global head of equity strategy at Jefferies. In an interview after Tuesday’s Union Budget, Wood spoke on his assessment of the budget, cryptocurrencies and foreign selling of stocks among other matters. Edited excerpts:

What is your reading of the Union Budget?

The key point about the budget is that it is a continuation of the trend we saw last year, which was the focus on infrastructure and capital spending. The capex is the most important point to me. The budget looks quite conservative fiscally to me. It may prove that the government is too conservative on revenues. But that’s not a problem.

Is the decline in the stock market over?

It is not surprising to see the Indian market correct a bit because of the Fed tightening issue but the key point is the big inflation issue is not in India, it is in the US and the G7 world. All these corrections in India are a positive opportunity for long-term investors. Markets are going to be volatile because of the Fed tightening cycle.

What is your assessment of the US Federal Reserve taking a more hawkish turn? How much will it hurt emerging markets like India?

There has been a dramatic U-turn change by the Fed, prompted by the very high inflation data. The last CPI print in the US was 7% and the Fed was targeting 2%. But from an Indian standpoint, the Indian currency is still holding up reasonably well. The two risks for the Indian market this year are the Fed tightening cycle and the higher oil prices. The domestic economy in India is supported by evidence of the housing markets in a recovery cycle, which is very positive. There’s domestic demand cyclical momentum in India, which will mean that the market will do okay, despite the risk of higher interest rates. I’m more concerned about how the Fed will contract the balance sheet. We don’t know what they’re going to do on the balance sheet yet.

The Indian bond market has turned nervous after the budget.

The inflationary pressures are in the G7 world, they are much less in other places. The RBI will have to tighten policy this year, but in my view, it is going to be nothing like the tightening that may happen in America. The most important point in India is the evidence of cyclical momentum. The forecast for the next fiscal year is 8.5% real GDP growth. That is a positive, particularly because we have had a high base effect. Modest rate hikes will not derail the economy. So, my advice is to take advantage of corrections caused by correlation with Wall Street. We will get a rising current account deficit in India because of the higher growth. India has much higher foreign exchange reserves than historically. So, yes, I am hoping the Indian currency will be more resilient than in the past. The biggest external risk apart from the Fed is oil. The oil price can definitely go significantly higher.

Foreign investors have been selling Indian stocks for the past four straight months. Is this trend likely to continue?

Foreigners will be selling because India looks expensive. They have got profits and they’re worried about Fed tightening. It doesn’t surprise me if we get more foreign selling. That doesn’t surprise me. People will be wanting to put money back into China. So this year, China is starting to ease monetary policy, whereas India and the US will be tightening. I don’t think the rate hikes will derail economic recovery in India.

How are India and China ranked in your emerging market list?

China just this year is in an easing cycle. But the negative on China is that the Chinese borders are still closed and they still have a very strict Covid suppression policy, which is causing economic growth to be slower than it would otherwise be. We don’t have that issue in India. I am happy to own both India and China. I don’t think one is much better than the other in the short term. Longer-term though, I prefer India.

Is it a good time to buy property stocks?

They have corrected so they should be exactly the areas that should be looking to buy. In the short term, the property sector will be impacted by rate hike concerns. That’s a good time to buy because long term, we’ve just entered a new property cycle in India, which should run five-seven years.

Which are the other themes you like?

Cryptocurrency is vulnerable with the Fed tightening. In the long term, they are very interesting, but in the short term, we have already seen a big correction. My core portfolio is in property and financials.



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