Indian stock market could be bottoming out after crash, says Chris Wood

The Indian stock market could be bottoming out after the sharp correction seen in the last few weeks, believes Christopher Wood, global head of equity strategy at Jefferies.

 

“There is a reasonable possibility that the Indian stock market is bottoming out after a correction, which has been primarily in the more expensive mid-cap stocks. A positive, as regards the private banks, is that liquidity pressures have reduced with deposits and loans now growing atthe same rate showing a decline in funding pressures,” Wood wrote in his recent weekly note to investors, GREED & fear.

 

 

From a 52-week high of 85,978 levels hit on September 27, 2024, the S&P BSE Sensex has slipped nearly 6,200 points, or around 7.1 per cent till date. The 30-share index had slipped into 'correction' mode with a fall of over 10 per cent from this peak level before recovering some ground.

 

The fall in the mid-and smallcap indices, data shows, was steeper. The Nifty MidCap 100 Index had declined by 12 per cent from the peak on September 24 to a recent low on November 12, and has since risen by 5 per cent. While the Nifty Index was down 11.5 per cent from the peak on September 27 to a recent low on November 21 and has since risen by 2.8 per cent, data shows.

 

Foreigners, meanwhile, have sold $12.5 billion worth of Indian equities in the past two months, but that selling has been absorbed by continuing strong domestic inflows.

 

"Indeed there was a record inflow into equity mutual funds in October even though the stock market was already correcting last month," Wood wrote.

 

As an investment strategy, Wood has taken exposure in the US-listed online travel company MakeMyTrip in the India long-only portfolio with a 4 per cent weighting. This, he said, will be paid for by reducing the existing investments in Reliance Industries (RIL) and Larsen & Toubro (L&T) by three percentage points and one percentage point, respectively.

 

He has also hiked his exposure to Bharti Airtel by one percentage point, which will be paid for by cutting the investment in Zomato.

 

Maharashtra election outcome a surprise

 

That said, Bharatiya Janata Party's (BJP's) victory in the Maharashtra assembly elections, he believes, was a surprise outcome that was mostly made possible due to an 'extremely popular cash handout scheme for women', subject to income levels.

 

Targeting women voters and adopting women-centric policies, he said, has been an ongoing feature of Narendra Modi’s government. 

 

“There is no doubt that the BJP victory was a surprise since when GREED & fear attended Jefferies’ India conference in September everybody was expecting the BJP to lose. The growing success of such handout programs in state elections does raise the risk of a wave of populism. Still the rise of such populist policies should still be seen in the context of a central government which is still spending more on capex than welfare,” Wood wrote.