Jefferies’ top equity strategist Christopher Wood says India’s economic picture is improving, even as global factors continue to weigh on its stock market.
In an exclusive conversation with Business Today, Wood said stronger credit growth and early signs of a revival in private-sector capital expenditure are encouraging. However, India’s market has been overshadowed by the global artificial intelligence boom, which has pulled foreign investors towards semiconductor stocks in Taiwan and South Korea.
Wood said that India’s economic data has been encouraging, with credit growth strengthening and private companies beginning to show signs of higher capital spending.
This is important because the government has spent heavily on infrastructure and has been waiting for private investment to take over as another engine of growth.
For Wood, India remains primarily a domestic consumption and investment story. He also sees signs that the rupee could be nearing a bottom after its recent weakness, which could make Indian assets more comfortable for overseas investors.
One of the biggest changes in global markets has been the rise of the AI investment cycle.
Wood believes much of the value created by this boom has so far gone to semiconductor companies. This has encouraged global fund managers to increase their exposure to chipmakers in Taiwan and South Korea, reducing allocations to India.
He also sees a growing risk that the huge amount being spent on AI infrastructure could eventually lead to capital destruction if companies fail to generate adequate returns. For now, however, the AI trade continues to support earnings in several parts of the US market.
While bond yields are the key risk for US equities, Wood sees crude oil prices as the biggest external risk for Indian stocks.
Higher oil prices can put pressure on inflation, the trade balance and corporate earnings. However, he believes India is less vulnerable to expensive oil than it was in the past.
Wood also sees energy as one of the most interesting themes in the Indian market, helped by rising private-sector investment and the rapid expansion of renewable energy.
Wood believes Indian banks may not repeat the strong secular growth seen over the past two decades. He sees greater interest in non-banking financial companies, while IT services face a structural challenge from AI.
Instead, he sees opportunities across energy and India’s vibrant small- and mid-cap space.
Wood believes India’s market is now more of a bottom-up story, with a wide range of companies offering different themes. However, continued equity issuance could put a cap on the broader index.
A reversal in the global AI trade could also redirect some foreign money towards India. For now, Wood believes the country’s improving domestic data, private investment cycle and diversified market could provide support, even as oil prices and global market risks remain key factors to watch.