Indian Stocks Sentiment In 'Extreme Bearish' Zone As Key Macro Events Loom
Donald Trump's return as president, Union Budget, first policy meeting under the Reserve Bank of India's new governor are key monitorable for CLSA.
Indian stock market's bull-bear gauge has moved to 'extreme bearish' ahead of a flurry of key macroeconomic events, with only a "relief rally within a larger correction" on the horizon, said analysts at CLSA.
After a 12% fall in the Nifty in less than four months, the CLSA India Bull Bear Index has moved from extreme bullish to extreme bearish, the brokerage said in a note on Monday. "Such extreme bearish sentiment has typically preceded a market rally."
The market has low expectations going into the macro-heavy next three weeks. Beginning of Donald Trump's second stint as president, the 2025 Union Budget, and Sanjay Malhotra's first policy meet as Reserve Bank of India's head are key monitorables according to CLSA.
The policies by Trump during his initial days will hint at how disruptive it may end up being for global trade, geopolitics, the US dollar, etc. "This will set the tone for flows into emerging markets like India," it said.
The brokerage said that the market may only see a relief rally within a larger correction. It maintained its defensive, low volatility and mega-cap positioning of its India focus portfolio.
The recent peak in September 2024 coincided with an extremely bullish signal amid the IPO frenzy and China's economic revival, CLSA said.
As of last week, the benchmark Nifty 50 saw its worst start to a year since 2016, with a fall of 4.83% in the first nine sessions. Since its life-high last year, the gauge has fallen by 11.5%. The small-cap benchmark — NSE Smallcap 250 — has tumbled over 6.4% in the first nine sessions in 2025, the highest in any year.
Analysts at CLSA see the bearish sentiment as a silver lining. The market is going into important macro events with light sentiment, which equates to low expectations build-up, it said. "Historically, such weak sentiment has acted as a good signal for at least an interim low followed by an up-move."
Fears of trade disruptions, a further rise in Indian bond yields, a weakening rupee, risks of earnings cuts, a slower normalisation of domestic growth and limited valuation hints that the upside will only be a relief rally, CLSA said.
