Jefferies’ Christopher Wood in his weekly newsletter to investors has said that India’s withdrawal of Rs 2,000 currency notes, which he called “mini-demonetisation”, has no monetary policy implications, but may have political motivations, reported Reuters.
In his weekly ‘GREED & Fear’, Wood said the note withdrawal is “officially being rationalised on the anti-corruption angle. But there is also a political motivation on the part of the incumbent BJP government in terms of opposition parties’ funding activities. Elections are financed in India by godowns stuffed with cash.”
Christopher Wood is global head of equity strategy at Jefferies. He has been recognised as the “best strategist” in Asia by esteemed publications like Asiamoney and Institutional Investor on multiple occasions.
State polls this year and the general election in 2024, the analyst believes that the withdrawal of Rs 2,000-notes is unlikely to have a disruptive impact on the economy. Unlike the 2016 demonetisation, there hasn’t been a rush to deposit notes in local banks. Instead, consumers have opted to spend their money on a range of items, from mangoes to luxury watches.
Wood remains “constructive” on India. “The most obviously positive point, from a stock market standpoint, is that the monetary tightening cycle is all but over with inflation falling in recent months,” he wrote.
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In April, headline inflation declined to 4.7 per cent, and it is anticipated to further decrease to approximately 4 per cent in May. Chris Wood foresees an average inflation rate of 5 per cent for the current financial year. Additionally, he expects a reduction in policy rates to occur either later this year or in the following year.
According to Chris Wood, now that the monetary policy tightening cycle has concluded, there is currently no clear immediate catalyst for a further de-rating of valuations, except for the possibility of external risk-off market activity. As per his observations, the stock markets have a one-year forward price-to-earnings ratio of 18x, slightly exceeding the 10-year average of 17.4x.
“Foreigners have also returned of late as net buyers of Indian equities as they have retreated again from China,” said Wood. Foreign investors sold $4.5 billion worth of Indian equities from December to February, but since March, they have purchased $7 billion worth of shares.