Bear Market | Christopher Wood: I am suspicious of the rally in US, India: Christopher Wood

Christopher Woodglobal head of equity strategy at Jefferies, says the recent surge in stock prices is more of a bear market rally in the US, which is tracking Indian stocks. In an interview with ET, Wood said India is not one of his top investment destinations right now. Edited excerpts:

What is your assessment of the rally in the Indian markets?

My opinion is that it is a bear market rally in the US. The reason to be skeptical about the rally in America is that you have a double whammy – tightening higher interest rates and shrinking balance sheets – which is negative for liquidity. The rally is driven by hopes that inflationary pressures have peaked. Inflation may have peaked, but the key question is whether inflation has stabilized. The real question is whether the Fed will try to hit its 2% target. India just follows the US. I am suspicious of this rally in the US and India. The market rally in India is closely related to the rally on Wall Street. Correction in oil has also helped India. Personally, I remain optimistic about oil. I want to keep owning energy stocks. I have not changed my view of India. The main issue here in India is how much rates go up and how far the rupee falls.

Mind about money

Is the Fed likely to continue raising rates aggressively?

The Fed is talking aggressively, but in the end I am skeptical that they will stick to the 2% target. My guess is that inflation in America will be around 4% or 5% at the end of this year. The inflation problem in America or Europe is much bigger than in India.

Is the worst sale of foreign investors in Indian equities over?

They didn’t buy that much compared to what they sold. One of the reasons foreigners sold so much in India earlier this year was because they put more money into China. China eased policy and India tightened, so China looked more attractive. But in recent months, the Chinese economy’s investment story has been significantly damaged by ongoing COVID suppression policies. So that has caused investors to become less constructive about China.

Where are oil prices going?

Towards the end of the year, I see oil prices rising. The main reason why oil prices are not higher is because of weak demand from China, which is related to the COVID suppression policy. The COVID suppression policy is negative for China, but it is positive for the Indian economy and the Indian market. I remain structurally optimistic about oil due to the lack of supply. The other good news for India is cheaper Russian oil. The COVID suppression policy has led to a significant slowdown in the Chinese economy and weakened Chinese consumer confidence, leading to reduced energy demand.

Where is India in your list of investment destinations?

India is not the best market this year due to the monetary tightening cycle. The best performing market, when I last looked, in Asia was Indonesia. My biggest overweight in Asia this calendar year so far has been Indonesia. India is fine, but India has a lot of counter currents. In 10 years, India will be my favorite bet, but not in 2022. The RBI is tightening. It was around the corner, but it’s not as bad as it used to be. I still believe oil is going up. I am overweight in India, but not dramatically, just a little overweight. India has performed better than I expected at the start of the year due to geopolitical factors, the most important of which is China’s COVID suppression policy. If China didn’t have the COVID suppression policy, the Chinese stock market would do much better and India would underperform.

For India, the most important thing is what the RBI does. The interesting thing about India this year is the resilience of the stock market given the large volume of foreign sales. In the long term, one should continue to invest in India, but the risk of a correction is certainly increasing. What the RBI does is important.

What are your prospects for the rupee?
The Indian currency will be vulnerable as long as there is tightening. So the good news is that the RBI was way behind early this year. I have become less nervous about the Indian currency in recent months as the RBI has started raising rates. I was more nervous in January and February before we had the inter-meeting walk. The inflation problem in India is more serious than, for example, in China or Indonesia. Therefore, the Indian currency has been weaker.

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