Mumbai: The scale of the economic collapse should represent a dramatic opportunity for long-term equity investors in India but the critical issue in the next 12 to 18 months is the extent of the damage done to the loan portfolios of banks and NBFCs, in particular their consumer loan portfolios, said Jefferies’ Chief Global Equity Strategist Christopher Wood in his weekly note ‘Greed & Fear’ on Thursday.
The decline in India’s economic growth in the quarter must surely mark the bottom, he said.
Wood said the 23.9% year-on-year decline in Indian real GDP growth in the June quarter and 22.6% decline in nominal GDP growth is as bad as anything he has seen. The 47.1% fall in real gross fixed capital formation is also gobsmacking, he said
“Such dramatic statistics highlight two points. First, the precipitous nature of the way the lockdown was announced and implemented in late March was disastrous for the Indian economy. Second, the Indian private sector, be it corporates or households, has not received anything like the scale of fiscal support, in terms of transfer payments and the like, seen in so many other countries,” said Wood.
The combined fiscal deficit of centre and state is projected to rise to 11% of GDP this fiscal year, up from 7.3% last fiscal year, and this reflects not only that India’s fiscal situation was already extended prior to the
pandemic but also that the BJP government is fiscally conservative, said Wood.
The Hong Kong-based Strategist said the lack of room fiscally to ease is further aggravated by the constraint on monetary policy seemingly posed by a pickup in inflation, aggravated by supply side issues.
Wood said bank lending has slowed dramatically, which is not surprising given that banks will want to shore up their balance sheets ahead of the RBI-instigated loan restructuring exercise which has now commenced.
Wood has increased weightage on China in his Asia Pacific ex-Japan relative return portfolio by one percentage point and reduced weightage on South Korea by the same amount.