India remains a great long-term domestic demand story: Jefferies' Chris Wood

The coronavirus pandemic has investors worried over the health of the global economy as restrictions on the movement of people across the world have brought business activity to a standstill.

Christopher Wood, global head of Equity Strategy at Jefferies, has made some changes in his India portfolio due to the extended lockdown.

In his weekly 'Greed and fear' report, Wood said HDFC Bank and ICICI Bank would be removed from the portfolio and an initial 3 percentage points weighting would be introduced in Kotak Mahindra Bank.

"This reduces the exposure of the portfolio in Indian private sector banks from eight percentage points to three. India has not really had a negative consumer credit cycle during this period. That is now probably about to change," he said.

"For reasons of sentiment more than logic, GREED & fear will maintain one bank. But this will be the bank which has the best history of growing through past negative credit cycles and, in an interesting move, approved raising equity capital (subject to approvals) presumably to prepare for troubled times ahead," Wood wrote.

Also read: What it will mean for RIL if Reliance Retail commands even half of Amazon's valuation

HDFC Life will also be removed which will reduce the exposure of his Asia ex-Japan long-only portfolio to Indian non-bank financials from 18 percentage points to 14 percentage points.

Meanwhile, an initial 4 percentage points investment will be introduced in Cipla, a manufacturer of hydroxychloroquine among other drugs, and an additional 1 percentage point will be added to Reliance Industries' position, taking it to 6 percent.

This increase is primarily as an e-commerce play not as an oil-refining play, the report said.

RIL is now 12.7 percent of the MSCI India Index and 13.9 percent of the Sensex, which means that passive funds have to keep buying it, and active managers will be under renewed growing pressure not to be underweight the stock as many of them are, the report explained.

He also added that India remains a great long-term domestic demand story, which is why Facebook founder Mark Zuckerberg wants to be more involved.

The lockdown in India was causing more suffering than the pandemic and continued shut down would make it inevitable that India suffers a consumer lending cycle, Wood said. There was a growing risk of increased forbearance on local lenders, he added.

Earlier this month, Prime Minister Narendra Modi extended the lockdown to May 3 from April 15 earlier to contain the spread of the deadly virus. Some restrictions were eased on April 20 to allow some economic activity.

In a GREED & fear note from March, Wood said he hiked China's stake in his Asia Pacific ex-Japan relative-return portfolio after the recent market correction. He pared stakes in Indian and Korean markets to fund the rise China stake rise.

China has started to outperform world equities since February in the hope that the worst may be over in the country even as cases outside China surged, he said.

Source: CNBC-TV18