Lockdown in countries like India and Indonesia are more disastrous for human welfare and economies since there is no help for small businesses nor are there unemployment benefits, said Christopher Wood, Global Head of Equity Strategy at Jefferies.

In the latest weekly note Greed & Fear, Wood said the situation in countries like India and Indonesia is in contrast with the US where the Small Business Administration’s Paycheck Protection Programme will provide up to $349 billion in forgivable loans to small businesses to pay their employees for eight weeks during the health crisis.

“…in countries such as India, with young demographics, such a lockdown causes more human suffering that Covid-19 itself. This continuing lockdown is, unfortunately, making it ever more inevitable that India will suffer a consumer lending cycle,” said Wood in the note on Thursday. Hong Kong-based Wood said there is also a growing risk of forebearance on local lenders.

He is also concerned about the continuing weakness in the rupee amid negative consequence of lower remittances from the Middle East as a negative consequence of fall in crude oil prices.

PORTFOLIO CHANGES

Wood said it does not make sense to own Indian banks in such a macro environment. Wood said India has not really had a negative consumer credit cycle since the inception of his portfolio in 2002 but this is probably about to change.

He has removed HDFC Bank, HDFC Life and ICICI Bank from his Asia ex-Japan long-only portfolio. Wood has introduced a weightage of 3 percentage points in Kotak Mahindra Bank as he believes that the lender has the best history of growing through past negative credit cycles and has raised equity capital this week presumably to prepare for troubled times ahead.

Wood’s Asia ex-Japan long-only portfolio has a 5% investment in Reliance Industries, which has been in the news as Facebook is buying a 9.99% stake for $5.7 billion.

Wood said he views Reliance Industries primarily as an e-commerce play and not as an oil refining play.

Reliance is now 12.7% of the MSCI India Index and 13.9% of the Sensex which means that passive funds have to keep buying it, and active managers will be under renewed growing pressure not to be underweight the stock as many of them are, he said.

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