Market to rally if nominal growth improves, earnings pick up: Chris Wood

India has not done badly-it's just that other markets have done better, Wood said. For India, he believes, the inflows from domestic investors have been critical in preventing a correction.

Indian equity markets have been stuck in a range since the last few months. Christopher Wood, global head of equity strategy at Jefferies, tells Puneet Wadhwa on the sidelines of their 4th India forum in New Delhi that his base case remains 10–15 per cent returns from the Indian markets in the next one year, though stock selection will be crucial. Edited excerpts:

 

Are you disappointed with the returns from Indian markets over the past year?

 

Not really. I see it as a phase of consolidation. Around February 2025, I had said that one could expect around 10 per cent returns from the Indian market. That still looks plausible. What’s important to note is that while the market has remained flat, there has been a lot of supply in terms of equity issuance, and that supply has been absorbed by domestic flows. Data shows that domestic flows are almost matching the supply. So, the base case remains that we continue to trade sideways for now.

 

 

How do you see global equity markets shaping up in the backdrop of Trump’s tariffs?

 

The longer these tariffs stay in place, the more negative the impact will be for everyone. But it's going to take time for the negative impact to become clear. Over time, the burden will fall on US consumers and the global economy. But interestingly, the US market is not trading on tariffs; it is trading on AI-driven capital expenditure.

 

Would you say that the other markets have decoupled from the US markets?

 

To some extent. Since Microsoft announced its investment in OpenAI, nearly 50 per cent of the gains in the S&P 500 have come from four hyper-scalers and Nvidia. US markets are now dominated by this AI theme and are a high beta market. Personally, I think there’s a risk of overinvestment in AI, and I believe DeepSeek’s message—that large language models (LLMs) could become commodities—remains valid. The US market is trading at record price-to-sales ratios. In my view, there is an AI bubble.

 

How are other global markets, especially India, positioned compared to the US?

 

Europe has done well, led by domestic stocks such as banks and defense, not exporters. Japan continues to perform on the back of corporate governance reforms. China, too, has surprised positively. My base case was that China bottomed in the fourth quarter of 2024, and it has rallied even without strong supporting data. I am overweight China. That said, India has not done badly—it’s just that other markets have done better. For India, the inflows from domestic investors have been critical in preventing a correction.

 

You have been an ‘India bull’ and tactically overweight. Would you look to change this now?

 

I’m only marginally overweight now. If I had both an India and a China portfolio, I’d be shifting some money from China to India. For those who are not overweight India, it is time they think about taking exposure. Those who are already overweight, there’s no rush to hike exposure.

 

By when do you see the markets break out of this consolidation phase?

 

I think the fourth quarter of 2025 (Q4-CY25) or early next year is when we may see a pickup in the Indian stock markets, partly due to goods and service tax (GST)-related measures. By then, I would hope we would start to see a pickup from all the various moves by the government, of which GST is the most important. 

 

The tariff noise didn't lead to a big correction in Indian equities. So, I don't see why it should lead to a big rally. The big picture now, however, is that Indian markets are seeing a healthy consolidation. If you didn't have inflows from the domestic investors, the supply would have caused a deeper correction.

 

Can the GST cut bring customers to shops and investors to the markets?

 

The cuts have raised expectations, but it’s too early to judge. Some goods are price inelastic—lowering the price of soap or toothpaste doesn’t increase consumption dramatically. But the government hopes the pickup in sales offsets the fiscal impact. If growth doesn’t improve within six months, markets will see that as a negative.

 

Would a US–India trade deal, especially around agriculture, impact sentiment?

 

I don’t see India compromising on agriculture. If the US insists on agriculture, there won’t be any deal at all. Similarly, on Russian oil, India would not want to be seen as conceding to US pressure. Markets understand this dynamic. So, sentiment won’t take a major hit.

 

What’s your outlook on corporate earnings?

 

Earnings have been coming through, but slowly, in low single digits, reflecting the slowdown in nominal growth. My colleagues forecast earnings growth of 12–15 per cent for next year, though I think 12 per cent is more realistic. Much of the potential lies in mid-cap and smaller companies. If nominal growth picks up from below 9 per cent currently to around 10 per cent in the next 12 months, that would support stronger earnings and a market rally. If nominal growth does not pick up, that implies a more structural problem.

 

Return expectation from Indian equities over the next year?

 

My base case remains 10–15 per cent returns, though stock selection will matter more than the index. IT services, for example, face disruption risks from AI, so I would avoid them.

 

Has the Jane Street episode dented foreign investors’ view of India?

 

No, because that doesn't impact regular long only equity investors. I was expecting a negative reaction from foreign investors to happen earlier, but it hasn’t. I was also expecting the Indian government to crack down on the developments, which has now happened. This is a one-off event.

 

What’s your message for Indian investors?

 

This is a healthy consolidation phase. Bottom-up stock picking is crucial. Conservative investors should consider some allocation to government bonds. Overall, patience will be rewarded—if nominal growth improves and earnings pick up, Indian stock markets could see a rally next year.