Christopher Wood, the chief strategist at CLSA is well known in the world of Global Equity Research as the No.1 Equity Analyst. He is the one who rightly predicted the US subprime crisis and India’s previous bull run, sees a temporary setback in Indian stocks with the central bank’s bias towards higher rates and due to stretched valuations, but says it would be an opportunity for long-term investors.
“I am always going to be overweight on India unless there is a real dramatic problem here,” Wood told The Economic Times Newspaper in an interview.
The 52-year-old former journalist with The Economist presided over the most celebrated research reports on Indian equity investments way back in 2003 called ‘The Indian Paradox’. Many at that time did not believe the report, which talked about demography-driven domestic demand in the country. But now, Wood and his team’s research is much sought after by investors.
Wood, who publishes a weekly newsletter called Greed & Fear, said while he believed there was “room for pullback and a correction” in Indian stocks after the recent rally that had created “a lot of profit on the table”, the infrastructure story will compel investors to return.
“Taking a five-year view, India is always going to trade at a premium multiple in the Asian context. India is unique in Asian equities. It is the only domestic demand-driven economy in Asia at a time when you are worried about Western growth. That is a big positive,” he said, urging investors with a long-term view not to sell Indian equities.
“India and China frankly could end up trading at two or even three times the multiple of the S&P’s 500. I can see Chinese and Indian equities trading up to 20-30 times earnings because the world is going to pay a premium to get growth when the world has got a shortage of growth and the Western world is in a deflationary funk.”
Indian shares are trading at 19 times their earnings forecast for the fiscal year ending March 2010. But he cautions that there could be disappointment if the government does not deliver on infrastructure. “To me, there is clearly a massive need for infrastructure,” said Wood, adding, “I am hoping, I mean if they do not, that would be a big disappointment and negative for the Indian story.”
Although the Reserve Bank of India (RBI), which according to Wood is “actually the best central bank in the world”, is set to raise borrowing costs proactively, it may not hurt investment into the sector despite the hit to banks’ profitability, he said.
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