Chris Wood on Indian stock market correction: Possible if these 2 things happen

Jefferies’ Christopher Wood said that the relative outperformance of Indian equities compared to other markets may make foreign investors cautious. In his latest edition of the Greed & Fear report, he said that emerging market (EM) foreign investors may no longer be ‘overweight’ on India owing to sustained outperformance and strong domestic inflow.

He said, “This is the context where more expensive mid-caps have continued to outperform blue chips with mid-caps accounting for about 60 percent of the inflows but only 30 percent of market capitalisation. This is the backdrop against which many foreigners’ portfolios have been underperforming.”

Changes to the capital gains tax structure expected in the forthcoming full Budget later this year could also result in a stock market correction, he said, adding, “The reason that such proposals are apparently under consideration is growing evidence of retail speculation, most particularly in the options market where India has options for individual stocks. Such paper speculation is unlikely to be viewed as healthy by Modi, or indeed the BJP. GREED & fear’s probably correct assumption is that the Indian Prime Minister has a natural suspicion of those making money out of money, most particularly in a zero-sum game like options.”