‘Indian stock markets still attractive’: Chris Wood sees cyclical recovery in residential property

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It is India’s residential property market where Chris Wood is seeing clear evidence of cyclical recovery.

Despite the massive amount of money that foreign institutional investors have pumped into Indian stock markets, Chris Wood, global head (equity strategy), Jefferies is not giving up on Dalal Street this year. His bullish views are supported by the scale of the cyclical recovery, expected this year after the heavy decline in the gross domestic product earlier in the second quarter. Chris Wood had recently increased India’s weightage in his Asia ex-Japan portfolio by one percentage point.

Strong macros

The ace strategist highlights Jefferies’ head of India research Mahesh Nandurkar’s forecast where earnings are expected to grow by 37% for the coming fiscal year and real GDP is expected to surge 13.2% on-year basis. “Meanwhile the most recent inflation data has given the Reserve Bank of India more room for manoeuvre after CPI inflation declined from 6.5% YoY in November to 4.6% YoY in December, with food inflation declining from 9.5% to 3.4%,” he said. 

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Bank credit growth slowed from 15.1% on-year at the end of 2018 to 5.1% in September last year. Although the same has risen to 6.7% on-year now but remains significantly low. This, according to Wood, means the central bank now has room to resume easing. On the pandemic front, India’s positive tests have also dropped from 12% in July to 2% now with vaccine rollout going strong.

Cyclical recovery

It is India’s residential property market where Chris Wood is seeing clear evidence of cyclical recovery. Sales volumes for the housing market peaked in 2013 and were significantly lower pre-covid. Highlighting Jefferies’ reports on domestic property market, Wood added that listed property developers last quarter showed clear evidence of recovery, as did the trend in property registrations. Jefferies India property analyst Abhinav Sinha expects sales to nearly double on-year in 2021 and even then remain 30% off their 2013 peak. “The scale and duration of the downturn is why the new housing cycle is expected to last at least five years once it gets going,” Chris Wood said. 

Positive movement in the residential property market, according to Chris Wood, will create an important ongoing private-sector driver of investment in an economy which in recent years has been primarily reliant on government investment. “The hope is that a pickup in the likes of cement and steel capex should become visible later this year or early next year,” he added. The ace equity strategist said that his views are supported by the historically low mortgage rates that make borrowing affordable. 

After the disruptions faced by India developers in the past few years, including GST, RERA, and Demonetisation, Wood said that the sector has gone through brutal consolidation. “Indeed GREED & fear, in many years of following property markets, has never seen a consolidation like it which is why the surviving major quoted developers should be viewed as long term holds,” he added.

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