Chris Wood rejigs India equity exposure; replaces HDFC with HDFC Bank

In the financial sector, Wood now holds SBI, Bajaj Finance, ICICI Prudential Life, ICICI Lombard and CAMS besides HDFC Bank in his India long-only equity portfolio.

Christopher Wood, global head of equity strategy at Jefferies has rejigged his portfolios. HDFC Bank has emerged as his preferred bet in the financial space, as his investment in HDFC in his Asia ex-Japan long-only portfolio will be removed and replaced by an investment in the former.

In the financial sector, Wood now holds State Bank of India (SBI), Bajaj Finance, ICICI Prudential Life Insurance, ICICI Lombard General Insurance and Computer Age Management Services (CAMS), besides HDFC Bank, in his India long-only equity portfolio.

“The investment in HDFC in the India long-only equity portfolio will also be removed and replaced by an investment in HDFC Bank. While the investment in ICICI Lombard General Insurance in the India long-only portfolio will be reduced by one percentage point with the money added to HDFC Bank,” Wood wrote in his weekly note to investors, GREED & fear.

The recent rate hikes by the Reserve Bank of India (RBI), Wood said, were positive and the Indian central bank had finally done away with nervousness surrounding the consequences of hiking rates.

"It is a positive, given the earlier hesitancy, that the RBI raised the policy repo rate by 50 basis points (bps) to 4.9 per cent on June 8 and increased its inflation forecast for fiscal 2022-23 (FY23) from 5.7 per cent to 6.7 per cent. Another 50-basis-point rise should be assumed at the next RBI policy meeting in early August," Wood wrote.

BS WATCH: Where are the bond markets headed as RBI mulls rate hikes?

Real estate

Notwithstanding the inflation worries and the rising interest rate cycle, Jefferies remains bullish on the Indian real estate sector and believes that the housing cycle will continue to gather strength.

"From late 1990s to around 2003, mortgage rates declined from around 15 per cent to 8 per cent, but the cycle stayed low. Then, during the upcycle of 2004-13, mortgage rates went up to 11 per cent. With the RBI's current tightening cycle likely targeting rupee stabilisation, much more than growth reduction, we don't think this time is any different," wrote Jefferies Managing Director Mahesh Nandurkar in a recent co-authored note with Abhinav Sinha.

The upturn in the residential property market in India, Jefferies believes, is already underway with volumes up around 35 per cent over trailing 12 months and prices rising in double digits in a few cities over the last four-six quarters.

“The housing cycle that went through a long seven-year downturn from 2013 to 2020 has resulted in significant pent-up demand. Even if residential sales rise to an all-time high of over 500 million square feet (sq ft) in 2022, they would still have grown at around 1 per cent compound annual rate since 2010. Given India's urban population and GDP growth rates, the trend rate should be much higher at 4-6 per cent. This provides significant headroom for residential sales to rise in double digits over next five years. Long periods of property price consolidation have also meant that affordability is still in its early cycle," Nandurkar and Sinha wrote.

Given the early stage of the cycle and ongoing industry consolidation, Godrej Properties, DLF and Lodha are the preferred picks among developers. Mortgage financiers (LIC Housing finance), contractors (L&T) and building material providers (Kajaria, Supreme) are the other beneficiaries.

Here's how Wood's India long-only equity portfolio looks as per the weightage:

Chris Wood, India long portfolio rejig

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