After months of turbulence, the much-needed market correction may finally be behind us, believes Mahesh Nandurkar, MD & Head of Research at Jefferies India. In a conversation with CNBC TV-18, he argues that valuations have now returned to more realistic levels, and economic fundamentals are showing early signs of improvement, setting the stage for stability in the markets.
The correction, he says, was inevitable, as stock prices had surged beyond what fundamentals warranted. While investors may perceive the downturn as a reflection of worsening fundamentals, he believes the reality is more balanced—the market was never as strong at its peak nor as weak as it seems today. Broader market valuations are now back to their 10-year averages, and at an individual stock level, about half of the 200 stocks Jefferies tracks are trading at or below their decade-long valuation trends.
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Beyond valuations, two major macroeconomic shifts are turning favorable. The first is a sharp rebound in government spending. In the first half of FY25, expenditure was down 2-3 percent year-on-year (excluding interest payments), but in the second half, it is projected to rise 14-15 percent. Given that this spending accounts for nearly 10 percent of GDP, the swing could directly add 150 basis points to economic growth.
The second is a turnaround in credit growth. Over the past year, bank credit expansion slowed from 16-17 percent to around 10-11 percent, largely due to regulatory pressures. But with the Reserve Bank of India now focusing on improving liquidity, Nandurkar believes the worst of the slowdown is over. Deposit and credit growth appear to have bottomed out, adding further momentum to economic activity.
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These factors, coupled with improving high-frequency economic data, reinforce his view that the correction phase may be over. With government spending ramping up and credit growth stabilizing, the market may finally be entering a more constructive phase.
In today's session, domestic benchmark indices ended the truncated week on a negative note on March 13 as persisting global uncertainties outweighed the optimism emerging from soft inflation prints of India and the US. Automobile and information technology stocks were hit especially hard, weighing down on the Nifty and Sensex.
The benchmarks had opened the session in positive territory, buoyed by upbeat global cues after inflation in the US came in milder-than-expected, sparking hopes of providing the Federal Reserve with more room to cut rates.
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