In July, when Finance Minister Nirmala Sitharaman announced an increase in capital gains tax, concerns arose about a potential downturn in the stock market. However, Chris Wood from Jefferies expressed surprise at the resilience of the Indian market. Since the lows of July 23, when the Nifty 50 index stood at 21,281, it has rapidly rebounded, gaining nearly 4,000 points and reaching a record high of 25,611.
Domestic Investment Drives Stability
Wood highlighted that the strength of the Indian stock market has been significantly supported by domestic investors. Despite the market’s robust performance, foreign investors have been cautious. In August, they engaged in significant selling, driven by concerns over the increased capital gains tax, which has deterred global funds from investing in India.
Where Are Foreign Investors Focusing?
While Chris Wood has repeatedly emphasized India’s impressive growth potential over the next decade, he noted that foreign investors are currently channeling their funds into other markets, particularly Brazil and Southeast Asian nations like Indonesia and the Philippines. He believes that a substantial correction of around 10% in the Indian stock market could attract foreign investors, viewing it as a prime opportunity for investment.
Portfolio Insights
Wood’s investment strategy includes a focus on sectors such as energy, real estate, capital plays, and banking stocks, with 19% of his portfolio allocated to real estate in India. This reflects a strategic confidence in certain sectors despite the broader challenges posed by tax policies.
Conclusion
While the Indian stock market has demonstrated remarkable resilience thanks to domestic support, the hesitance of foreign investors raises questions about the sustainability of this momentum. As global dynamics shift, it will be interesting to see how the Indian market adapts and whether it can attract foreign capital back into the fold
