Chris Wood, in his recent analysis, highlights the notable trend of Indian equities being consistently under-owned by emerging market active funds since 2014.
In a detailed examination, Chris Wood elucidates how Indian equities have consistently remained under the ownership radar of emerging market active funds since 2014, shedding light on potential implications.
Christopher Wood, Jefferies’ Global Head of Equity Strategy, Foresees Compulsory Buying of Indian Company Stocks by Foreign Investors Due to Under-Ownership Despite Market Weight Increase” In a recent note from Jefferies, Chris Wood delves into the robust earnings growth and superior returns track record of Indian equities. He emphasizes the potential attraction for incremental foreign flows to India driven by its rising market weight and deep markets.
Foreign Investors’ Under-Ownership of Indian Equities Highlighted by Chris Wood
“Chris Wood Highlights India’s Under-Ownership Despite Market Cap, Foresees Increased Foreign Investment Opportunities” India’s 5th position in global market capitalization contrasts with its 8th ranking in the Bloomberg World Index, holding a mere 2 percent weight, as noted by Chris Wood. This discrepancy, he suggests, presents an opening for foreign investors to tap into the world’s fastest-growing economy.
Wood points out that Indian equities have been notably under-owned by global emerging markets active funds since 2014, despite India’s increasing weight in the MSCI EM index. While India’s weight in the index has surged to 17.9 percent from 8 percent in June 2020, foreign investors have not proportionally bolstered their investments in Indian equities.
Jefferies underscores this trend, noting that as India’s weightage in global funds rises, Indian stocks will become essential holdings for a broader range of equity investors, transcending the EM-focused ones. Wood anticipates this shift to mark a significant change in the investment landscape, offering increased diversification opportunities.
“Jefferies’ Note Highlights Potential for Increased Inflows into Indian Markets Despite Lower Equity Flows in 2023” According to a note from Jefferies, Indian markets saw $20 billion in equity flows in 2023, a figure that fell short compared to previous levels relative to market capitalization. This suggests a promising outlook for potential inflows into Indian markets in the near future.
The Underpenetration of Domestic Funds in Indian Markets Highlighted
“Chris Wood Highlights Underpenetration of Domestic Funds in Indian Markets”. Chris Wood pointed out that Indian markets exhibit underpenetration by domestic funds relative to global standards. Citing data from the World Bank, he noted that only 5 percent of Indian household savings are allocated to equities, while mutual fund assets-to-GDP stands at 16 percent, significantly lower than the global average of 60 percent.
Jefferies anticipates a shift in this trend as awareness of mutual funds increases among investors, expecting a surge in savings flowing into Indian equity markets.