“To adjust the Asia-Pacific ex-Japan return portfolio partially for recent market activity to maintain the Overweight in India and Neutral in China. Accordingly, the weighting in India will be increased by one percentage point while the weighting in China will be increased. reduced by one percentage point,” the report said.
According to the report, India is likely to record its third year of stock market outperformance in a regional and emerging market context. The MSCI India has outperformed the MSCI AC Asia Pacific ex-Japan and the MSCI Emerging Markets by 14.5 percent and 11.1 percent, respectively, on a total return basis year-to-date and by 66.4 percent and 66 percent since the start of 2021.
The feeling that this is India’s moment was only reinforced by the results of the recent state elections, which came in better than expected for the BJP, the report noted.
The results, earlier this month, saw the BJP winning the three state elections of Madhya Pradesh (MP), Rajasthan and Chhattisgarh held in November while the Congress won only in the state of Telangana. Indeed, the BJP gained both seats and vote in all the four states. For example, the BJP won 115 seats and 42 percent of the votes in Rajasthan and 164 seats and 49 percent of the votes in MP, compared to 73 seats and 39 percent of the votes in Rajasthan and 109 seats and 42 percent of the votes in Rajasthan. . Deputy in the previous elections in 2018, it pointed out.
The BJP lost elections to the Congress in those three states in 2018 and has now won them all back with clear majorities, it added.
“BJP’s victory in the 3 state elections of MP, Rajasthan and Chhattisgarh is much better than what exit polls suggested and reinforces the consensus expectations of a Modi victory in national elections in 2024 with a greater likelihood of 300+ seats for the BJP. This boost to the BJP. Investor sentiment should bode well for domestic cyclical sectors, namely banking, industrials, power, property and midcaps. Competitive populism from both the BJP and the Congress is also clearly visible,” said a report by Jefferies on December 4th.
The high popularity enjoyed by PM Modi (approval rating at 60-70 percent during his tenure) remains a major contributing factor to the BJP’s performance, and will play a major role in the 2024 elections, the brokerage noted.
These state polls show that the party remains quite popular in the core Central/Western/Northern part of India. “We believe the BJP is likely to win back the 200+ seats it won consecutively in 2014 and 2019 from the Big 7 states (UP, MP, Rajasthan, Gujarat, Maharashtra, Bihar, Karnataka). The party may also secure more 90-100 seats (96 in 2019) from 170 other smaller contributing states which include Chhattisgarh, Telangana, Delhi, Jharkhand, Assam, West Bengal etc.,” it said. As such, Jefferies believes in repetition. of 300+ seats is now a possibility.
It also added Coal India, Honasa Consumer ltd, Eicher Motors Ltd, NTPC Ltd, HDFC Bank Ltd and ICICI Prudential Life Insurance Company Ltd to its Indian model portfolio by deploying cash and at the expense of Power Grid Corporation of India Ltd, Marico Industries, Maruti. Suzuki India Ltd and NBFCs (Non-Banking Financial Companies).
In an equity strategy note dated November 24, analysts Mahesh Nandukar, Abhinav Sinha, and equity partner Nishant Poddar of Jefferies India Pvt Ltd said they raised cash tactically in their model portfolio in early September, which they said is now deploying as the key. macro concerns around higher US yields, rising oil prices and upcoming state election results have eased.
Jefferies has replaced Maruti Suzuki India Ltd with Eicher Motors as they expect Indian two-wheeler demand to grow at a faster rate than passenger vehicles over the next two years. Eicher Motors shares have lagged the Nifty Auto index so far on competitive concerns, but Jefferies sees limited impact on Eicher Motors from Harley and Triumph launches and sees room for re-rating as confidence in long-term market share sustainability rises. Maruti, on the other hand, is witnessing some demand-side pressures, according to Jefferies.
Meanwhile, Power Grid Corporation has been replaced with NTPC as both are attractive plays in the India power story but NTPC offers higher earnings per share growth of 10% CAGR (compound annual growth rate) of over 6% for Power Grid. Also, Marico Industries has been replaced by Honasa Consumer Ltd, as Marico has delivered well on margin expansion in the last few quarters, although volume growth remains weak, with rural still under pressure.
China
The GREED & Fear index believes that consolidation is coming in China’s property sector, which India has already experienced triggered by the double whammy of the Real Estate (Regulation and Development) Act, 2016 and demonetisation in November 2016.
Jefferies China property analyst Calvin Leung estimates that property sales at SOE developers fell 5 percent YoY in November compared with a 49 percent YoY decline for private developers. For the first 11 months of 2023, private developer sales fell 47 percent while SOE developer sales were flat over the same period.
“Amidst all the evidence of growing tensions, and the apparent end of massive developer consolidation, the interesting question to GREED & fear is what is the fundamental level of real estate in China assuming only end users and no investors. If such a level has already been reached , this offers the best hope for a real pick-up in demand. Still considering the psychological damage done to belief in the command economy model as a result of the events of the past two years and due to the increased awareness of the Chinese middle class of the negative demographics after -Covid, there is clearly a risk that sales will fall below that fundamental level of demand especially if every Chinese who owns more than one property, and there are many of them, is looking to get rid of excess properties,” the report explained.
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Published: 11 Dec 2023, 15:26 IST