India's relative underperformance compared to Asian peers is due to the valuation premium that the domestic companies command, and this has resulted in a 'healthy consolidation' that may continue for the rest of 2025, according to Christopher Wood, global head of equity strategy at Jefferies and author of the closely tracked Greed & Fear report. However, should the 50 percent Trump tariffs on India come off, there is a strong possibility of a 'tactical rally' in Indian stocks, he added.
Chris Wood said that India's strong mutual fund inflows have continued to support domestic equities, without which share prices would have been lower by 20-30 percent, given the continue FII selling this year has taken the foreign holding of Indian equities to 15-year lows. Chris Wood said most of the foreign selling this year has been to fund investments in South Korean and Taiwanese trades, especially in the AI-related plays, given that FIIs have been trying to catch up in those markets. If not for these factors, the FII money would have started to return to Indian equity assets in the last two months, Chris Wood added.
Speaking to CNBC-TV18 during a conversation on September 16 from New Delhi on the sidelines of the Jefferies Investor Forum, Wood added that any resolution of Trump tariffs levied on India could trigger a market rally, but a more critical factor would be any signs of a pick-up in India's nominal GDP next year. The measures around rate cut, GST reforms and the income tax cut announced during the Union Budget together should lead to a pick-up in economic activity and a subsequent market rally next year, said Chris Wood. India's nominal GDP has been growing around 10-12 percent in recent years, and rose by 8.8 percent during Q1FY26, exceeding expectations.
August has been the 25th consecutive month of net DII inflows into equities, with the first five months of FY26 seeing a net inflow of $37.6 billion. In contrast, foreign institutional investors have been net sellers in equities to the tune of $1.5 billion so far this fiscal. July and August had seen a net outflow of $6 billion, wiping off the inflows in the preceding three months.
There is a 50 percent possibility of a tactical rally if the levies on Indian exports come off, Chris Wood added, calling them 'anomalous' and triggered by President Trump's 'personal pique' over the recent India-Pakistan dispute. "It is clear from a US foreign policy standpoint that these 50 percent tariffs have needlessly antagonized India and it does not make sense from a diplomatic standpoint to encourage improvement in India's relations with China," he added. However, the 'good part' of the tariffs is that it has accelerated what the government was planning to do in terms of indirect tax reforms.
"If it wasn't for the Trump tariff issue, I think there would have been a chance that money would have started to enter India in the last two months. But because of the tariffs, the return of the foreign money has been delayed. Going into next year, I would expect FIIs to turn next buyers by the end of this calendar year even if this tariff issue is not resolved," Chris Wood said, betting on the impact of the monetary easing to start to show up in the Indian economy.
"My guess is US is looking for a deal," Wood said and went on to add "..this or any other Indian government cannot open agriculture, or be ordered around to not buy Russian oil. Most particularly when it is clear to everyone that this oil is refined in India and then bought by the Europeans." Though there are areas that can allow a face-saving deal between India and the US, he added, while cautioning against buying stocks and leverage on the basis on that.
Chris Wood said he has remained largely Overweight India in his longer-term portfolio, and in the more tactical funds, he has only been marginally Overweight India.
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