Avoiding banks, but worst is over: Chris Wood | Economic Times

The end of the lockdown is the most positive thing that has happened in the Indian markets since the coronavirus outbreak, said Christopher Wood, global head of equity strategy at Jefferies. Wood, who no longer has Indian private banks in his Asia ex-Japan long-only portfolio for the first time since its inception, said he is less negative on banks after the Reserve Bank of India decided not to extend the loan moratorium. Edited excerpts:The coronavirus risk continues, but the markets seem unperturbed. How do you read the situation?All markets including India are influenced by the US market, and the US market has continued to rally… For India, my understanding is the net recovery rates are improving. While the case load continues to rise, the reality is that the death rate in India is very low. The market is probably taking the view that the worst has been seen in India… In terms of domestic activity, most things are not locked down anymore. The key, most positive thing that has happened in India since Covid-19 started is that the government ended this lockdown. The lockdown was very negative for the Indian economy.Is the market rally a bear market rally or a sustainable one? Do you see the Indian market hitting record highs soon?I would stay invested in India. There are better markets to invest in but in my view, the market will not go back to the lows of March. The other positive thing that has happened is that the government has not extended the moratorium. The RBI has announced a restructuring process. That is more positive. I was worried they were going to extend the moratorium to the end of the year. I am less negative on banks as opposed to positive on Indian banks.You don’t have Indian banks in your Asia ex-Japan portfolio anymore.It has happened for the first time since 2002 when I started my Asia ex-Japan long-only portfolio that I do not have an Indian private sector bank in it. The reason for that is there is a risk. We already had this risk because of the NBFC crisis and the dramatic slowdown in growth in India. We had this dramatic slowdown in growth in India even before Covid-19. My concern is we may get a big increase in consumer NPLs. That’s why I don’t have any Indian banks in my portfolio… If I am wrong and there is not going to be a consumer NPL cycle in India, then you should buy the Indian banks.What is your outlook on gold prices? There are mixed views on whether the rally will sustain.I am long term very bullish on gold because I believe US real interest rates will remain very low. In the short term, gold can correct a bit more. The worst case for gold is a correction back to 1,750 level. One thing about India is in the last several years, you had positive real rates in India.HDFC Bank will soon have a new CEO. What is your outlook on the bank?It is good that they have made an internal appointment. The previous CEO did such a fantastic job. It is a bit like replacing the manager of a very successful football team, it is not easy. Right now, HDFC Bank has the lowest percentage of loans in moratorium... It would make me more nervous if they had made an external appointment.What is your reading of the economic data coming out of India?We have seen the worst. I am hoping the second quarter was the bottom. The data suggests that the economy is 80% back to normal.Where does India stand within your preference list for EMs?I am a bit overweight on India, but I was much more overweight two years ago. I raised the weighting a little bit when they announced the bank restructuring but my biggest overweight in the Asian portfolio remain China and Taiwan.How will the market react to a Trump victory or a Biden victory?It is very hard for Donald Trump to win the election unless the cases and deaths because of the virus decline significantly by, let’s say, the end of September... If the election was held today, then the Democratic Party would win, and they would probably take control of the Senate. In the stock market that would be good for everything to do with alternative energy because the Democrats want to do a $2 trillion Green New Deal... In the market there would be concern that the Democrat administration will want to regulate and tax more aggressively Big Tech.