Sell-off in Indian stocks is technical in nature, no drastic macro issue: Jefferies
The sell-off in Indian stocks is primarily technical in nature and reflects multiple compressions rather than any drastic macro issue, according to a recent report of 'Greed & Fear' by Jefferies.
ANI
Feb 28, 2025 13:14 IST
New Delhi [India], February 28 (ANI): The sell-off in Indian stocks is primarily technical in nature and reflects multiple compressions rather than any drastic macro issue, according to a recent report of 'Greed & Fear' by Jefferies.
The sell-off is more painful as compared with the nifty benchmark index, because of the much bigger decline in the small and mid-cap stocks where multiples are much higher.
"In India for the first time since the stock market started to correct properly, GREED & fear's base case is that the sell-off is primarily technical in nature reflecting multiple compression rather than any drastic macro issues."
Aggressive selling by foreign portfolio investors (FPIs) is a major driver for the recent stock market fall in India, but it's concentrated in more high beta cyclical sectors.
"In stock terms, the sell-off has been concentrated in the more high beta domestic cyclical sectors, such as property, infrastructure and industrials which were the big outperformers last year," said the report.
Market participants and domestic fund managers say that the retreat from domestic cyclicals is now rationalised. The demand in the economy will increase because of the populist measures announced by the Modi government in its third term.
Cash handouts announced by many states will fuel rural demand and a cut in personal income tax in the recent budget will be positive for urban consumers.
Jefferies terms the RBI's credit and monetary tightening as negative for the equity markets.
Loan growth has slowed from 16.6 per cent (YoY) in February 2024 to 10.6 per cent in November and 11.3 per cent on 7 February since the Reserve Bank of India targeted loan-to-deposit ratios. But loan growth is now more in line with deposit growth which suggests tightening seems to be over. Indian bank deposits rose by 10.6 per cent (YoY) on 7 February.
Jefferies says despite RBI cutting the rate by 0.25 per cent on February 7th monetary policy the real interest rate is still high.
"One negative for the Indian equity market has been credit and monetary tightening which have now ended. The RBI, under its new more doveish leadership, announced on 7 February its first rate cut since May 2020 with the policy repo rate declining by 25 bp to 6.25 per cent. Still real interest rates remain relatively high," said the report.
RBI needs to cut rates like other emerging markets as dollar has strengthened since Trump returned to the White House in January, the report suggested.
Jefferies, however, noted that amid selling by foreign investors, increased investment in mutual funds by domestic players is a positive for the Indian markets.
The report however sees the risk of outflows from Mutual Funds when small and mid-cap funds start showing year-on-year loss in about three months.
The report also noted that any renewed easing by the Fed will be a relief for India and other emerging markets asset classes. It will also weaken the US dollar which will be positive for India and other emerging markets. (ANI)
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