Global funds are beginning to pay more attention to India with the market now offering 30 companies with a market capitalisation bigger than $25 billion. As a result, many global funds are now registering as foreign portfolio investors to invest directly in India, said Christopher Wood, global head of equity strategy at Jefferies.

“As it has become a consensus view that China is “uninvestable” the consensus has swung around to embracing a positive structural view of India. Most global emerging market investors are only marginally overweight on India, say by at most two percentage points,” said Wood in his latest weekly note to investors, GREED & fear.

In terms of current portfolio positioning in India, dedicated emerging market investors remain very geared to the consumption story. According to Wood, however, the portfolios should now be more positioned for the now commencing private-sector capex cycle. “With the Indian market still at risk of more of a near-term correction, this means they should be looking to add to property, banks and industrial stocks on any pullback in prices,” said Wood.

India portfolio

Jefferies’ current India long-only equity portfolio comprises five banks including ICICI Bank (7 per cent), HDFC Bank (7 per cent) and Axis Bank (6 per cent). Reliance Industries has the largest weighting (10 per cent).

Based on a 6.3 per cent annualised real GDP growth for the next five years, as forecast by the IMF, India could become the world’s third largest economy by 2027. India’s GDP today is near where China’s was in 2007.

Wood said India’s story is about much more than just positive demographics. “The growth outlook is enabled by India’s arguably unique digital infrastructure. There is also the huge upgrading of physical infrastructure since Modi came to power in 2014. If India remains primarily a domestic demand-driven story, the country’s export potential should also not be forgotten,” said Wood.

While the long-standing success story has been IT exports, recent years have seen a surge in service sector exports that includes the growth of so-called “global capability centres” where multinationals base their global IT operations out of India.

“This is an area where globalisation is definitely not yet in retreat. There is also the obvious potential for India to attract foreign direct investment in manufacturing as multinationals from Apple down seek to diversify their production away from China to hedge escalating geopolitical tensions,” Wood said.

Wood believes that if the recent positive trends are maintained, India can account for a significant percentage of global growth in the next 10 to 20 years. But global portfolios are in no way positioned for such an outcome.

‘No Fed rate hike’

Markets are now much more confident that there will be no Fed rate hike at the forthcoming meeting, feels Wood, and oil prices remaining stable given events in West Asia was a positive.

“The fundamental issue raised by the bond sell-off of recent months remains whether it was driven by the then prevailing “higher for longer” narrative or by supply-side concerns. In meetings in Germany this week, GREED & fear’s observation is that most investors think it is driven by both,” said Wood.

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