After the market’s sharp correction in the last five weeks, Vikas Kumar Jain, India Strategist and Head of Research at CLSA believes that there could be a reasonable interim bullishness.
He pointed out that the market has already priced in several negative factors, including a weak earnings season, foreign institutional investors’ (FIIs’) focus on China, high inflation and the ongoing Iran-Israel conflict. As a result, a short-term rally may be on the cards, Jain said during a media interaction in Mumbai on November 19.
However, Jain noted, “I’m not sure if this is the start of a bull market or just a bull market within a bear market.”
He also mentioned that the initial enthusiasm around China has died down, as the country’s policymakers appear to be taking a less aggressive stance. Jain believes the rally may take some time, especially with Donald Trump taking office as the new US president in January.
Another possible catalyst for the rally could be the historic performance of the markets in December. Data over the past 20-30 years shows that three out of every four Decembers have produced positive returns, with average returns typically between 2-3 percent. This makes December generally favorable for investors, he added.
The relative stability of crude oil prices is also seen as a positive factor supporting the rally.
On FIIs, Jain explained that of the $900 billion in FII assets under management (AUM) in India, over $800 billion is linked to non-India-dedicated funds. These funds react more to broader emerging market (EM) trends, particularly those related to China, rather than specific developments in India.
Relatively speaking, Jain believes India may outperform other emerging markets during global outflows, as fund managers may shift allocations from China to India. However, he cautioned that the full benefit may be limited due to India’s high valuation.
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