Jefferies' Christopher 'Chris' Wood has stated that weighting in India will be increased, and made Overweight, by reducing exposure in Taiwan by an equal amount in one of their portfolios.
In the recent Greed and Fear report, the Global Head of Equity Strategy at Jefferies said that the weighting in India will be raised by two percentage points by reducing weighting in Taiwan by two percentage point in the Asia Pacific ex-Japan relative-return portfolio.
Wood wrote that the reasons were cited in Jefferies' India research head Mahesh Nandurkar's equity strategy report titled "Five reasons to OWT India". OWT stands for Overweight.
Nandurkar in his report cited India's relatively low exposure to the US; lower tariff rates; lower crude oil price that could even make up for the reduction in US trade surplus; foreign portfolio investors (FPIs) looking to reduce their India underweight (UWT) positions; and improved liquidity from the Reserve Bank of India's (RBI's) new stance.
Here are the reasons cited Nandurkar's report in greater detail.
1. The US is India's largest trading partner, accounting for ~18% of total exports. However, India's goods exports and trade surplus with the US at 2.3% / 1.2% of GDP are lower in comparison to most EM counterparts. Korea and Taiwan exports to US are 7%/15% of GDP, respectively, and trade surpluses at 4%/10% are a multiple of that for India.
2. The reciprocal tariffs imposed by the US, though high at 26% for India, are still lower than those for the larger Asian EMs. China (104%), Indo (32%), Taiwan (32%), in line with Korea (25%). Brazil and the Middle Eastern block have lower 10% tariffs. Indian govt. statements post the reciprocal tariffs have sounded fairly hopeful of negotiating lower tariffs, particularly as India pursues Bilateral Trade Agreement negotiations with the US.
3. Brent Crude oil prices are down ~20% YTD to US$60/bbl. India is a large net importer, so a decline in oil prices is a significant positive for the country's BoP / Fiscal / CPI situation. The govt. already raised the excise duties on petrol & diesel by Rs2/ltr even as retail prices are constant. This adds 0.1%/GDP (Rs320bn) to govt. revenues. A US$10/bbl decline in crude oil prices reduces India's CAD by ~0.3-0.4% of GDP, and at US$60/bbl (vs. US$80/bbl avg. in FY25), the lower crude effectively more than makes up for potential reduction in US trade surplus.
4.FPIs have sold US$27bn in India since Sep'24, partly as China rallied. Our conversations with EM managers (corroborated by data) shows that the majority of funds are carrying India weight at Neutral to UWT. We get a sense that EM investors are looking to cut the India UWT.
5.RBI's monetary policy today has shifted its stance on liquidity to 'accommodative' from 'neutral', implying RBI will maintain surplus liquidity in the banking system. Already, several steps worth Rs8.5trn (2.6% of GDP) have been taken by the RBI since Dec24 to inject liquidity, consequent to which liquidity has shifted to a surplus position (Rs1.3Trn) vs. a deficit earlier in the year. Relaxed liquidity stance should help in deposit rate cut transmission and support bank margins.
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