Christopher Wood, Global Head-Equity Strategy, Jefferies is of a clear view that corrections in the Indian equity market are buying opportunities for anyone with a medium to long-term view.
Talking about impact on emerging markets and their pecking order in case of likely faster taper by the Federal Reserve Wood said, “The Fed starting to taper tighten does raise the risk for India relative to other markets. India has done extremely well, but India is very expensive. So, India is exactly the sort of market in Asia that will correct most if we have a tapering scare sell-off in the markets, particularly because the RBI has been relatively easy and so the Indian market."
For the short term -- doing asset allocation on a one or two-month point of view -- Wood is underweight on India.
"I frankly would remain underweight India now, but I do asset allocation on a six month and longer view, any meaningful underperformance by India in the near-term caused by tapering type, tightening concerns will lead me to increase my structural overweight in India, because I think India is at a very interesting macro juncture right now, similar to where we saw India in 2000 to 2003," he explained.
“We also need to remember that tapering doesn't mean contracting the balance sheet, it just means expanding asset purchases slowly. Given how much inflation has overshot, given how negative interest rates are right now, the most negative since the early 1970s, what is extraordinary is that the Fed is still expanding the balance sheet at all,” said Wood, adding that we need to remember that the word hawkish is very qualified at this point.
According to him, the new vice chairman at the Fed Lael Brainard is more dovish than Jerome Powell. She in many respects will be more influential in shaping monetary policy than Powell.
When asked should equity markets be worried that there would be two or three rate hikes by Fed next year, Wood said there is a possibility of this level of rate hikes, but the argument is somewhat circular.
“If markets remain very calm, then I believe the possibility of rate hikes grow but if markets start selling off in the face of tightening risks, then the prospect of wage hikes reduce. So to me, the key driver is not the Fed, the key driver is the markets because I believe the Fed follows the markets. The Fed has no tolerance for pain,” Wood specified.
For the entire discussion, watch the video