New Delhi [India], January 31 : Indian stock markets are expected to bottom out before February 7th, according to a report by Jefferies.
The report also highlighted that there will be no surprises in the upcoming Union Budget, and that the Reserve Bank of India (RBI) will maintain a pro-growth stance in its monetary policy meeting.
It said "Nifty should bottom out before 7th Feb assuming no tax- surprise in the budget & a pro-growth RBI mtg. Rate sensitives should do well in the expected near-term rally".
The report suggested that rate-sensitive stocks are likely to perform well in the expected near-term rally.
The Indian stock market has been undergoing a correction for the past 126 days, which makes it the second longest correction of the last decade. At a 15 per cent decline, the current correction is in line with the average declines observed during market pullbacks in the last ten years.
However, this phase of the market downturn may soon come to an end, as global cues and domestic factors seem to be pointing towards a recovery.
Jefferies highlighted that the Indian market's performance has often mirrored the trends in emerging markets (EMs), and this pattern is repeating itself. The MSCI Emerging Markets (EM) Index, which had corrected by 12 per cent from its October 2024 peak to its January bottom, has already bounced back by around 5 per cent. This rebound in the EM Index is seen as a positive lead indicator for India, suggesting that the Indian market is likely to bottom out soon as well.
Additionally, the U.S. Dollar Index (DXY) has also shown signs of weakening, further boosting optimism for a market recovery in India.
Looking ahead, the report suggested that while the expected market rally could provide some short-term gains, equity supply is expected to rise again once the market bounces. This could limit the overall returns from the market.
Furthermore, the report also highlighted a potential slowdown in domestic inflows, as trailing returns on a 12-month basis have fallen to 7.5 per cent. If the market continues to move sideways in the coming months, the reduced returns could dampen investor sentiment and slow down the flow of domestic capital into the market.
In conclusion, while a market recovery is expected in the near term, it will likely be capped by higher equity supply and slower domestic inflows, which may impact overall market performance over the next 12 months.
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