Greed & Fear: Chris Wood Shakes Up Portfolio Post Modi Re-election; Cuts Major Banks, Adds Infrastructure

Following Narendra Modi’s re-election as Prime Minister of India, Chris Wood from Jefferies has updated his India long-only portfolio, adding a new focus on infrastructure. Wood has allocated 4% of the portfolio to this sector.

Adjustments in Bank Holdings

To make room for this infrastructure addition, Wood has reduced the weightings in three major banks:

• ICICI Bank: Reduced by 1 percentage point.
• HDFC Bank: Reduced by 1 percentage point.
• Axis Bank: Reduced by 2 percentage points.

As part of the new infrastructure theme, GMR Airports has been added to the portfolio.

Previous Changes and Concerns

In the last edition of his Greed & Fear report, Wood had expressed concerns about Prime Minister Modi’s potential challenges in leading a coalition government. This led him to decrease the portfolio’s exposure to public sector undertakings (PSUs) like State Bank of India (SBI), REC, and Coal India by 1 percentage point each. At the same time, he included PolicyBazaar with a 4% weightage.

Shifts in Asia Portfolio

In the Asia long-only portfolio, similar changes were made. The investment in HDFC Bank was removed to accommodate GMR Airports. Additionally, Wood planned to increase investment in JSW Energy by 1 percentage point, reducing the investment in SBI.

Investor Strategies and Market Outlook

Wood anticipates that the new government might lean towards populist policies rather than infrastructure spending, which could shift investor focus towards consumption stocks. He noted the possibility of initiatives targeting the rural sector’s revival.

Despite foreign investors being net sellers of Indian stocks in 2024, with a $4 billion outflow compared to a $21.4 billion inflow in 2023, Wood believes that a market correction could attract more foreign investment. He warned that mid-cap stocks might be at the greatest risk of further corrections, given their higher valuations compared to the broader market.

Long-Term View

Wood maintains a positive long-term view of India’s market, highlighting a continuing uptrend in property and capital spending as key growth drivers.