New Delhi [India]: Indian stock markets are expected to bottom out before February 7, as per a report by Jefferies. The report also indicated that the upcoming Union Budget is unlikely to bring any surprises, and the Reserve Bank of India (RBI) is expected to maintain a pro-growth stance in its upcoming monetary policy meeting.
Key Insights from the Report
The report stated:
“Nifty should bottom out before 7th Feb assuming no tax-surprise in the budget & a pro-growth RBI meeting. Rate sensitives should do well in the expected near-term rally.”
Current Market Trends and Expected Recovery
- The Indian stock market has been undergoing a correction for 126 days, making it the second-longest correction of the past decade.
- The current 15% market decline is in line with previous corrections over the last ten years.
- However, global and domestic factors suggest that the downturn may soon end, paving the way for a recovery.
Emerging Market Trends and Impact on India
- Historically, Indian markets have mirrored emerging market (EM) trends.
- The MSCI Emerging Markets (EM) Index, which saw a 12% correction from its October 2024 peak to its January bottom, has already rebounded by 5%.
- This recovery in EMs is considered a positive lead indicator for India’s market turnaround.
- Additionally, the US Dollar Index (DXY) has weakened, further fueling optimism for a market rebound in India.
Short-Term Rally vs. Long-Term Market Outlook
- The expected near-term rally is likely to benefit rate-sensitive stocks, per the Jefferies report.
- However, equity supply is expected to rise once the market bounces back, limiting overall returns.
- A potential slowdown in domestic inflows is also a concern, as 12-month trailing returns have fallen to 7.5%.
- If the market remains sideways, lower returns could dampen investor sentiment, impacting domestic capital flows.
Conclusion
While a short-term market recovery is expected before February 7, long-term market performance could be capped by rising equity supply and slower domestic inflows. Investors should remain cautious as market conditions evolve over the next 12 months.