Indian markets a relative-return disaster; rupee bottom at 89: Chris Wood

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Indian stock markets have been a ‘relative-return disaster’ this year, said Christopher Wood, global head of equity strategy at Jefferies in his weekly note to investors, GREED & fear. 

 

From a macroeconomic standpoint, he believes there is a growing likelihood that the rupee has bottomed after being the worst performer year-to-date amongst major emerging market currencies. 

 

“India has only been a relative-return disaster this year, in terms of underperforming the MSCI Emerging Markets Index by 27 percentage points (pp) year-to-date, as opposed to an absolute-return disaster. This is because of the continuing remarkable resilience of domestic inflows,” Wood said.

 

India’s current account deficit should be 0.5 per cent of GDP in 2025-26 (FY26), a 20-year low, while foreign exchange reserves are at a comfortable level of $690 billion, or 11 months of imports.

 

Key risk

 

The biggest risk to the bottoming out of the rupee, Wood believes, is the continuing resort to handouts in state election politics which have been a feature for the past two years. "The growing populism at the state level is reflected in a fiscal situation which looks much healthier at the 'centre' than at the level of the states," Wood said. 

 

 

From a stock market standpoint, the key issue in India, he believes, is whether the credit and monetary easing seen this year, combined with the lowering of GST rates effective from September 22, will lead to a pick-up in growth, particularly nominal GDP (gross domestic product) growth, in coming quarters as it should do.

 

"In the absence of such an anticipated cyclical pickup Indian equity valuations in aggregate will be increasingly vulnerable.  Still one area where valuation looks positively attractive is the property sector," Wood wrote.

 

One area of AI vulnerability in India, according to him, remains the IT Services sector in India, where the revenue growth of the Indian listed IT companies slowed to 1.6 per cent YoY in the September 2025 quarter (Q2-FY26), leading to a resulting de-rating. 

 

By contrast, Wood believes India-based global capability centers (GCCs) have increasingly contributed to the services sector’s expansion.