New Delhi: According to a report by Jefferies, Indian stock markets are anticipated to reach their lowest point before February 7th.
The report also indicated that the upcoming Union Budget is unlikely to present any unexpected developments, and the Reserve Bank of India (RBI) is expected to uphold a pro-growth approach in its forthcoming monetary policy meeting.
It stated that "Nifty should bottom out before 7th Feb assuming no tax-surprise in the budget & a pro-growth RBI mtg. Rate sensitives should do well in the expected near-term rally."
The analysis suggested that stocks sensitive to interest rates are poised to perform favorably in the anticipated near-term rally.
The Indian stock market has been experiencing a correction for the last 126 days, marking it as the second longest correction in the past decade. With a 15 percent decline, this correction aligns with the average downturns seen during market pullbacks over the last ten years.
Nevertheless, this period of market decline may soon conclude, as both global indicators and domestic elements appear to signal a potential recovery.
Jefferies noted that the performance of the Indian market has frequently mirrored trends in emerging markets (EMs), and this trend is currently reemerging. The MSCI Emerging Markets (EM) Index, which experienced a 12 percent decline from its peak in October 2024 to its low in January, has already rebounded by approximately 5 percent. This recovery in the EM Index is viewed as a favorable lead indicator for India, suggesting that the Indian market is likely to reach its bottom soon.
Furthermore, the U.S. Dollar Index (DXY) has shown signs of weakening, which further enhances optimism for a market recovery in India.
The report anticipates that although a market rally may yield some short-term benefits, an increase in equity supply is likely to occur once the market rebounds. This situation could restrict the overall returns available from the market.
Additionally, the report pointed out a possible decline in domestic inflows, as the trailing returns over the past 12 months have decreased to 7.5 percent. Should the market continue to exhibit sideways movement in the upcoming months, these diminished returns could negatively affect investor sentiment and hinder the influx of domestic capital into the market.
In summary, while a market recovery is projected in the near future, it is expected to be constrained by rising equity supply and a slowdown in domestic inflows, which may influence overall market performance in the next year.
