Calls India the best market, yet cuts exposure. What’s Christopher Wood seeing?

Renowned market strategist and Global Head of Equity Strategy at Jefferies, Christopher Wood remains structurally bullish on India's long-term growth story despite reducing exposure in his portfolios due to valuation concerns and liquidity tightening. Speaking in an interaction with ET Now, Wood explained the rationale behind his recent tactical adjustments while reaffirming his confidence in India's economic trajectory.

Wood clarified that while he had previously advised reducing India exposure, this was more of a relative adjustment than a fundamental shift in conviction.

"I cut my weighting in India in my relative return portfolio to only a little over neutral from a big overweight, but in my greed and fear long-term portfolios where I have stocks, I have cut India much less because I still believe India is the best structural story in Asia and in fact globally," he said.


Reflecting on the recent market correction, Wood admitted that while it was anticipated, the timing was unexpected. "I have to admit, the correction does not surprise me because in fact one was expecting..., what surprised me was how long it took for the correction to happen," he noted.

He pointed out that the Indian market had previously absorbed multiple challenges well, including a surprise election outcome and the introduction of the capital gains tax, both of which had less impact than expected. However, he identified two key factors that eventually triggered a sharper correction.

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"First, the supply of equity by the fourth quarter of last year started to catch up with the demand for equity and Indian corporates, for very understandable reasons, when they saw very high valuations, most particularly in the midcap space raised equity because with the valuations on offer, it made sense to raise equity even if you did not need the money immediately, so that supply caught up with demand," Wood explained.

In addition to the supply-demand mismatch in equity, he highlighted a significant tightening of both monetary and credit policy as another major contributor to the correction. "And I am not talking about just raising rates, I am talking about the RBI basically monitoring loan deposit ratios, so guiding banks to keep their loan deposit ratios down and I am talking about more sort of bottom-up precautionary regulation on unsecured consumer credit micro lending and the like, so that has definitely contributed to the correction," he added.

Another liquidity constraint came from RBI's currency support measures, which further restricted market liquidity. Combined with high midcap valuations, these factors led to a valuation compression-driven correction rather than any major macroeconomic issue.

However, Wood cautioned that despite India's correction being well underway, an emerging risk now lies in the US equity market downturn, which could prolong weakness in Indian equities. "If the US equity market is correcting, it will also keep pressure on Indian equity. But the good news is that India had already corrected quite significantly before the US stock market started to show weakness, because the relative weakness in the US stock market has only really started this calendar year," he pointed out.

His insights suggest that while short-term pressures remain, the structural investment case for India remains intact, making it a key market for long-term investors to watch closely.

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