“Indian market will continue to trade sideways for the rest of the year as mutual fund inflows continue to absorb equity supply. Importantly, the supply is not expected to subside, barring a market collapse, with Jefferies’ India office estimating USD 50-70bn of supply in the next 12 months”.
Mumbai: India’s stock markets are being supported largely by consistent mutual fund investments, which are preventing a deeper fall despite heavy outflows, according to a report by Jefferies.
The report said that without these inflows, the high level of supply in the market could have led to a collapse.
It stated, “Indian market will continue to trade sideways for the rest of the year as mutual fund inflows continue to absorb equity supply. Importantly, the supply is not expected to subside, barring a market collapse, with Jefferies’ India office estimating USD 50-70bn of supply in the next 12 months”.
The report noted that Indian markets are expected to trade sideways for the rest of the year as steady mutual fund inflows continue to absorb equity supply.
In the first five months of the current fiscal year beginning April 1, mutual funds recorded inflows of USD 21 billion, including around USD 3 billion a month coming through Systematic Investment Plans (SIPs).
These SIP flows, where investors commit a fixed amount monthly, have been acting as a strong buffer by absorbing supply estimated at USD 6-10 billion per month.
However, the supply of equities is unlikely to ease in the near term. Jefferies’ India office estimates that the market could see fresh supply of USD 50-70 billion over the next 12 months, barring a sudden collapse.
The report highlighted that corporate as well as private equity investors exiting their holdings are keen to raise capital at current attractive valuations. MSCI India is still trading at 22 times forward earnings, and if financials are excluded, the multiple rises to 25 times.
Jefferies also pointed out that if the base case remains sideways market for now, there could still be scope for a rally in the new calendar year. This potential uptrend, it said, would depend on signs of stronger economic growth triggered by easing measures.
In the longer term, the report continues to view India as the best structural growth story in global equities. A significant factor in this outlook is the ongoing deepening of equity issuance.
The report added that this trend makes the small- to mid-cap segment of the market particularly interesting, even though valuations are higher.
Overall, Jefferies believes that while near-term movement may remain range-bound, India’s long-term equity story continues to stand out globally, supported by structural growth and expanding investor participation.