Chris Wood's Greed & Fear: India In Focus After Nifty Hit 20,000 And The G20 Summit
The real action has been in the mid-cap stocks where gains have been much greater, but where valuations are also much higher.
India’s financial media has focused this week on the Nifty Index reaching 20,000 for the first time.
Major Indian stock market indices are trading at all-time highs, but the real action this year has been in the mid-cap stocks, where gains have been much greater but where valuations are also much higher. The Nifty MidCap 100 Index has risen by 29% so far this year, compared with a 11% gain in the Nifty Index, Jefferies' Chris Wood said in his latest 'Greed & Fear' note dated Sept. 14.
"The MidCap index now trades at 24.1 times its 12-month forward earnings, compared with 18.7 times for the Nifty," the note said.
This move has been driven by a renewed pickup in domestic fund flows. Domestic equity mutual funds’ net inflows rose to Rs 29,000 crore in August, the highest level since March 2022, it added.
There is clearly room for a correction in the mid-cap area, most particularly as a continuing rise in the oil price has the potential to create some renewed inflationary noise in India, just as it does in the developed world, Wood said in Greed & Fear.
"Still, by historical standards, valuations for the big-cap stocks are not particularly extended."
India In Long-Term Structural Growth
Foreign investors are not as "overweight" on India as might be thought, given that there is now consensus that India is the long-term structural growth story in Asia, not China.
"Any pullback in India is a buying opportunity."
Greed & Fear also noted an imminent capex cycle in terms of the rising amount of new private project announcements, resulting in annualised new private project announcements rising by 70% year-on-year to a record Rs 28 lakh crore in the four quarters ended June 30.
The other evidence is the share price performance of companies geared toward such order flows. The order flow of the capital goods majors (Larsen & Toubro, Siemens, ABB, and Thermax) has risen by an average of 25% year-on-year, on a trailing four-quarter basis, for the last six quarters and was up 47% year-on-year in 1QFY24 ended June 30. These four stocks have risen by 35–63% year-to-date, the note said.
G20 India Summit 2023
The G20 Summit was a triumph for the global status of Indian Prime Minister Narendra Modi in the sense that there was an agreement on a statement on Ukraine, which massively dilutes the anti-Russia stance taken by the G7 following the invasion of Ukraine in late February 2022, according to Greed & Fear.
The formal announcement at the G20 of an India-Middle East-Europe Economic Corridor linking India with the Gulf and Europe should be seen as a counterpart to China’s Belt and Road Initiative. "That said, Modi and India still have a foot in both camps given India’s membership in BRICS," the note said.
India, as a major importer of energy-related products, has different interests from other prominent members or invited members of the BRICS group. It is also of note that on Monday following the end of the G20 Summit, there was a one-day summit in Delhi with Saudi Crown Prince Mohammed bin Salman, Greed & Fear said.
"This reflects the dramatically increased economic ties between India and the Gulf countries since Modi’s arrival in power in May 2014. India’s total trade with Gulf countries has risen from $97 billion in FY16 to $185 billion in FY23 ended March 31," it said.
