Last update:November 12, 2024, 3:08 p.m. IST

Jefferies highlighted that foreign investor activity has been a key pressure point for the broader stock market.

Jefferies India also cut its FY25 earnings estimates for 63% of the 121 companies covered.

In a recent GREED & Fear note, Christopher Wood of Jefferies highlighted that the recent correction in the Indian market, more particularly in small and mid caps, was triggered by the second quarter earnings season which saw the largest declines in benefits for India. Inc since early 2020.

Following these downgrades, Jefferies India has also reduced its FY25 earnings estimates for 63 percent of the 121 companies under its coverage that have reported their second quarter results so far, also marking the ratio of highest deterioration since early 2020. According to Chris Wood, India Inc’s downward earnings revisions reflect the impact of a cyclical slowdown that has dampened earnings growth.

Although concerns over profit growth and foreign capital outflows may put short-term pressure on the market, participation by domestic investors remains strong. Jefferies also noted an increase in the supply of shares in the market, which jumped to about $7 billion per month, for a total of about $60 billion since the start of the year. This increased supply now meets robust domestic demand, a sign of a more balanced market environment.

Banking on these levers, Wood maintained his long-term bullish stance on Indian stocks, albeit with some caution. He views the recent market correction as healthy, especially since it has affected the more expensive part of the market.

Woods also remains optimistic about the prospects for private sector banks, the relatively cheap end of the market which has recently started to outperform amid expectations of a potential reduction in the cash reserve ratio (CRR) by the Reserve Bank of India in the coming months.

Jefferies Indian banking analyst Prakhar Sharma also highlighted that the RBI’s change in stance on liquidity from withdrawal to neutral should ease concerns for the sector. “Moreover, growth rates between credit and deposit growth have now converged from a peak gap of 400 basis points over the past year. This, coupled with better deposit growth and easier liquidity, should support banks’ net interest margins,” the Greed and Fear note said.

Overseas Sales Pressure and Market Outlook

Jefferies highlighted that foreign investor activity is a key pressure point for the stock market as a whole. October saw significant global fund sales, amounting to nearly $11 billion, contributing to the 6.2 percent decline in the Nifty 50, its worst monthly performance since March 2020. Despite That said, the index still managed an 11 percent gain for the year so far. .

Jefferies highlighted that strong domestic inflows into equity mutual funds have persisted, with current domestic flows still outpacing the growing supply of stocks as companies capitalize on high valuations.

Cautious Optimism and Equity Supply Trends

Jefferies’ updated Indian equity strategy is marked by cautious optimism. Although fears over earnings growth and foreign capital outflows could put pressure on the market in the near term, domestic investor participation remains robust. Notably, stock supply has been running at about $7 billion per month, rising to about $60 billion year-to-date. This is starting to match strong domestic demand, signaling a more balanced market.

Long-term bullish outlook for India

Despite current challenges, Jefferies maintains an optimistic long-term view of India. The investment bank reiterated its prediction that India would reach a market capitalization of $10 trillion by 2030. Aashish Agarwal, head of Jefferies India, pointed out that while current valuations appear high, they reflect the high visibility of India’s growth. He credited the emergence of retail investors for strengthening domestic markets, noting that many foreign investors might find India expensive due to scrutiny of traditional sectors such as financial services, consumer goods basic and technological services.

Agarwal highlighted that the next phase of growth would be driven by sectors such as infrastructure, manufacturing, hospitals and transport hubs like ports and airports. He argued that these areas still have significant growth potential and are not yet overvalued.