Jefferies’ Chris Wood stays bullish on Indian equities and sees any selloff as a buying opportunity even as global research firms have started downgrading domestic markets citing expensive valuations. “If Greed & fear had to own one stock market globally for the next ten years, and not be able to sell it during that period, that market would be India,” the market veteran said in his latest report said. He remains "remains structurally...

Jefferies’ Chris Wood stays bullish on Indian equities and sees any selloff as a buying opportunity even as global research firms have started downgrading domestic markets citing expensive valuations.

“If Greed & fear had to own one stock market globally for the next ten years, and not be able to sell it during that period, that market would be India,” the market veteran said in his latest report said. He remains "remains structurally overweight on India".

India, from a macro perspective, looks in a similar condition to where it was in 2003 when the country embarked on the last property and capex cycle, Wood said. "Rising interest rates will not derail the upcoming investment cycle. Indeed, they will reflect accelerating growth.”

“The 10-year bond yield rose from a low of 5% during the 2003-2004 period to 8-9% during the next several years without impacting the then accelerating investment-led cycle,” the report said. Jefferies sees a similar situation now that will help accelerate growth.

A selloff triggered by a tapering or tightening scare on Wall Street will provide opportunities to add to Indian equities, most particularly if this coincides with a further likely rise in the oil price on an accelerating re-opening of the global economy, he said.

India's benchmark Nifty 50 has surged more than 26% so far this year, making it the best performer among world's major equity indices. And Jefferies' bullish stance is contrary to what some of the other research firms are saying.

Morgan Stanley downgraded Indian equities to ‘equal-weight’ from ‘overweight’ citing expensive valuations, following similar moves by Nomura and UBS. Morgan Stanley sees Fed tapering, higher energy costs and a likely rate hike by Reserve Bank of India in February as some of the risks.

Strategists at UBS downgraded Indian equities saying the valuation gap with Asean markets was “too wide to justify”. Nomura downgraded domestic equities to ‘neutral’ citing unfavourable risk-reward.

Eoin Treacy's view

India’s stock market has more than doubled since the pandemic panic lows in March 2020. With a 10% overextension relative to the trend mean evident, it is susceptible to some consolidation but the current reaction is no larger than anything seen in the last eighteen months and suggests momentum is still dominant in supporting the market.
If India is in the early stages of a new credit cycle, as seems very likely, that will support speculative interest in asset price appreciation for years to come. That does not change the fact that India is a volatility market. It will be best bought following inevitable setbacks.

The Aberdeen New India Investment Trust has unwound much of its overbought condition and is now steadying in the region of 600p and the 200-day MA.