GREED & Fear Report: Too much India exposure hurt returns, says Jefferies' Chris Wood - but he isn’t giving up

Christopher Wood, Jefferies' highly influential Global Head of Equity Strategy, has revealed in his latest 'GREED & Fear Report' that an overweight position in India significantly hampered returns in his Asia ex-Japan long-only portfolio over the past year, despite his enduring conviction in the nation's long-term potential. The report highlights that while Indian stocks underperformed, critical global factors such as US Treasury bond yields and concentrated risks within the booming AI sector are now pivotal in shaping market dynamics and future capital flows. Wood's portfolio saw an 8.8% decline in the last quarter and a 14.5% gain over the past year, markedly lagging the MSCI AC Asia ex-Japan Index's 1.1% decline and 33% gain, respectively, largely due to India's performance. This underperformance comes as global investors aggressively chase the AI-driven rally, favoring markets like Korea and Taiwan, which boast heavy semiconductor exposure. Foreign Portfolio Investors (FPIs) have responded by selling a net US$21.1 billion in Indian equities this year, surpassing last year's record outflows. Meanwhile, Wood emphasizes US Treasury yields as the 'most important price in world markets,' noting that their sustained rise can tighten global liquidity and divert capital from emerging markets. Concerns are mounting over the AI sector 'bubble characteristics'—high valuations, crowded positioning, and extreme market concentration—with analysts warning that massive AI Capital expenditures may not translate into proportional earnings, risking a severe market correction. Looking ahead, the trajectory of US Treasury yields and the sustainability of the AI rally will disproportionately dictate global capital allocation, including to India. While India's underlying economy demonstrates resilience and strong Domestic mutual fund inflows provide a crucial buffer against foreign outflows, a significant return of FPIs may hinge on a sharp correction in semiconductor stocks or a reassessment of AI's commercial realization. Investors will be closely monitoring whether the anticipated earnings recovery in India for FY27 can overcome these external headwinds and justify its premium valuations, pushing the Sensex closer to Wood's long-term target of 100,000.