Vikash Kumar Jain, India Strategist and India Head of Research at CLSA has expressed uncertainty regarding the current market rally. I am not sure if it is the start of a bull market or a rally in the bear market,” Jain stated in a media interaction in Mumbai on November 19. After a significant market correction over the past five weeks, there appears to be a reasonable interim rally, according to Jain.
He noted that the market has been navigating several negative factors, such as a weak earnings season, foreign institutional investors (FIIs) shifting focus to China, high inflation, and geopolitical tensions involving Iran and Israel. Reflecting on historical market performance, Jain highlighted that December is generally a favorable month for investors. Data from the past 20-30 years indicate that three out of every four Decembers have delivered positive returns.
The median return for the month typically falls within the 2-3 percent range, further supporting the possibility of a year-end rally. Jain added that relatively stable crude oil prices are another positive factor supporting the rally. He also pointed out that a significant portion of India’s $900 billion FII assets under management (AUM) is in non-India-dedicated funds.
These funds often react to broader emerging market trends, particularly those linked to China, rather than India-specific developments. On a relative basis, India might fare better than other emerging markets during global outflows, as Jain believes fund managers may shift allocations from China to India. However, he cautioned that absolute gains could be limited due to India’s relatively higher valuations.
In conclusion, while positive signs and historical trends are suggesting a potential rally, there remains ambiguity about the market’s long-term direction amidst the current economic and geopolitical environment. Abhijit Bhave, Managing Director and CEO of Equirus Wealth believes a 5-10% correction from current levels might be a fair expectation for market stabilization. However, he noted that a strong earnings report card in the December quarter might bring some relief.
Jain discusses market uncertainty
Bhave also mentioned that mid-caps and small-caps have seen significant outflows due to valuation concerns, but their earnings trajectory remains robust. He advised that this could be a good time for long-term investors to accumulate fundamentally strong, low-leverage companies with earnings visibility.
According to Bhave, the current correction is due to global uncertainties and domestic valuations catching up with reality. While it’s challenging to pinpoint an exact level, markets often stabilize around valuation comfort zones. Historical trends suggest that a PE correction to long-term averages provides a psychological floor for India.
Structural drivers such as post-monsoon solid output, improving domestic consumption, policy support, and a recovery in capex could help stem the downward trend. The next 6-9 months will be crucial, involving factors such as the change of regime in the US, the stance of federal banks on interest rates, inflation dynamics, and global trade tensions. Domestically, earnings resilience will play a critical role.
Bhave believes any prolonged correction beyond mid-2025 seems unlikely, barring unforeseen global shocks. Indian stock markets could see a “Santa Claus rally” over the next six to eight weeks, according to Vikash Kumar Jain, a strategist with CLSA. Jain predicts that the stock market could rise between 5% and 7% during this period.
He cites historical trends of gains in December and believes that any negative factors have already been priced into the market. The term “Santa Claus rally” describes a phenomenon where stock prices surge in December, often driven by increased consumer spending during the holiday season and general year-end optimism. Jain’s outlook suggests that investors might find opportunities in this traditional period of market gains.
His predictions come despite some ongoing market challenges, which he believes are already reflected in the current prices.
