Wood in his weekly note to investors titled ‘Greed and Fear’, further noted that the long-term dividends from many of the reforms adopted by the Narendra Modi government will become self-evident over the due course of time.
Some of the reforms include the production-linked incentive scheme which is aimed at encouraging manufacturing in multiple sectors including mobile phones, semiconductors, defence, electronics, with a view to raising gradually the value-added in India. Wood notes that the programme is more targeted and focused than any previous ones in the country.
The Reserve Bank of India (RBI) in an unscheduled meeting last week hiked the benchmark lending rate by 40 bps while cautioning about the rising inflationary pressures. Analysts have opined that more rate hikes will be seen soon, and some may be aggressive in nature.
Wood is not in a rush to add India to ‘Overweight’. “The need to tighten monetary policy, with more rate hikes likely coming, combined with the continuing risk, if not probability, of a much higher oil price, is why GREED & fear has been in no hurry to add to the Overweight in India this year,” he wrote.
The Indian market saw record selling by the foreign investors in the first quarter, which continued in April due to reasons including Chinese policies to curb the Covid spread.
Foreigners sold a record net US$13.5 bn of Indian equities in Q122 and another US$3.8 bn in April.
“While monetary policy has probably been too dovish, fiscal policy has been successful in the sense that revenues have continued to surprise on the upside so far this year, as was also the case last year,” Wood wrote.
‘GST a major success’
The Goods and Services Tax (GST) was introduced in 2017. Wood notes that the tax revenues have risen by 34% YoY to Rs 27.07 lakh crore last fiscal year, nearly Rs 5 lakh crore above the original budget target of Rs 22.17 lakh crore and well above nominal GDP growth of 19%.
“Five years after its launch in July 2017 and after some initial teething problems with IT systems, the introduction of GST can now be proclaimed a major success,” he wrote in the note. The government is now reaping the benefit from much greater compliance, a process enabled by the transparency provided by Aadhaar, he said.
