Market Revival Soon? Jefferies' Divided Stance On Rebound Adds To Small Investors' Woes

When investors struggle to predict the bottom of a market correction, the very institutions they turn to for guidance can sometimes add to the uncertainty.

Indian stocks have erased over $1.2 trillion in market capitalisation with retail investors seeing the most impact. While various analysts and brokerage houses try to foresee an end to the plunge, two divisions of Jefferies have contrasting views on the revival of Indian stocks based on their quantitative and fundamental outlook.

India's rival China is the "most favourite" market, according to Jefferies' quantitative strategy as the local market is still "too expensive." Elevated earnings expectations amid slowing nominal economic growth have been the key drivers of the ongoing downgrade cycle in India.

Even as the benchmark indices — Nifty 50 and Sensex — have fallen 15% and 14.2% from their peaks, Jefferies noted that they are still the most expensive market in Asia. "With earnings growth likely to be 12% for fiscal 2033-26, a forward price to earnings of 16-18 times could be the floor."

The report said that it continued to prefer China to India and shift from value to growth, favouring compounders, dividend growers and multi-baggers.

However, the same brokerage in its India equity strategy report expects a "near-term bounce." This revival call comes as valuations are close to long-term averages, with government spending uptick and regulatory easing by the Reserve Bank of India.

Foreign portfolio investors' ownership tracker indicates that India's positioning by emerging market funds is at a decadal low, Jefferies said. With the dollar index down 4% from the peak, global fund flows might turn to India.

The domestic flows have been strong so far, and a possible comeback or reduction in selling of FPI flows can also be a driver of good returns in near term, Jefferies said. "Global uncertainty and policy actions pose a risk."

The deepening selloff in Indian stocks has made the long-time expensive stocks cheaper, with most largecaps trading below their historic averages. Amid this, experts call for caution as the 'universe' valuation will be "misleading" given the weights.