Chris Wood bullish on Indian equities despite runaway rally since March low

Despite the runaway market rally since March 2020 that saw the S&P BSE Sensex hit the 50,000 mark for the first time ever, Christopher Wood, global head of equity strategy at has maintained a bullish view on Indian equities for 2021.

still likes the this year. The key reason is the scale of the cyclical recovery in the coming fiscal year as a result of the dramatic collapse in growth in the second quarter of last calendar year when real gross domestic product (GDP) declined by 23.9 per cent YoY,” Wood wrote in his recent weekly note to investors,

For the stock market to have a real nasty unwind at the global level rather than just a bull market correction, Wood believes there needs to be a catalyst in the form of an economic downturn or a material tightening in US Federal Reserve’s (US Fed) policy. For now, he rules out the possibility of either of these catalysts materialising.

“The economic downturn is not going to happen in GREED & fear’s view since the vaccine rollout implies the opposite and the resulting unleashing of pent-up demand, which will be given further momentum by the sheer scale of the Covid-19 stimulus announced last week by the now inaugurated President Joe Biden,” Wood wrote.

Back home, expects corporate earnings to grow by 37 per cent in fiscal 2021-22 (FY22), while real GDP is expected to rise by 13.2 per cent YoY. Among sectors, Wood remains bullish on the property / real estate sector as sales are expected to revive after a prolonged slump.

Sales volumes in the Indian housing market peaked out in 2013, and were still one-third below their peak in 2019 before Covid-19 hit. Residential property sales, as per a note, are expected to nearly double this year on YoY basis. Yet, then they would still be 30 per cent off their 2013 peak.

“As a result, unsold inventory, already down 20 per cent from the peak, is expected to decline further to an eight-year low of around 25 months of sales by the end of this year with prices starting to rise in early 2022,” the note says.

At the bourses, the Nifty Realty index has performed mostly in line with the frontline Nifty 50 – rising nearly 90 per cent since its March 2020 low as compared to 91 per cent up move in the latter. Stock prices of Sobha Developers, Godrej Properties, DLF and Brigade Enterprises have more than doubled during this period, ACE Equity data show.

“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. agrees. Indeed the upturn could be longer. This will create an important ongoing private-sector driver of investment in an economy which in recent years has been primarily reliant on government investment,” Wood wrote.

The other reason the Indian housing cycle can run for an extended period, Wood believes, is that prices are very cheap while historically low mortgage rates make borrowing affordable. According to a Jefferies note, property prices have risen at an average annual rate of only 1-2 per cent since 2013, well below inflation running at around 5 per cent and per capita income growth at around 8 per cent.

“Meanwhile, the fundamentals of the market on the ground are much healthier as a result of the Real Estate (Regulation and Development) Act implemented in 2016. The result, combined with other shocks such as demonetisation, the introduction of GST and now Covid-19, has meant a 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,” Wood said.

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