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Another reason for the rally could be the historical market performance in December, Jain said.
Stock Market Rally Ahead?
After a sharp market correction over the past five weeks, Vikash Kumar Jain, India Strategist and Head of Research at CLSA, believes there could be a reasonable interim rally.
He pointed out that the market has already priced in several negative factors, including a weak earnings season, foreign institutional investors (FIIs) shifting focus to 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 am not sure if this marks the start of a bull market or just a rally within a bear market.”
He also mentioned that initial enthusiasm surrounding China has waned, as the country’s policymakers appear to be taking a less aggressive stance. Jain believes the rally could take some time, especially with Donald Trump set to take office as the new US president in January.
Another potential catalyst for a rally could be the historical performance of markets in December. Data from the past 20-30 years shows that three out of every four Decembers have delivered positive returns, with the median return typically ranging between 2-3 per cent. 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 out of the $900 billion in FII assets under management (AUM) in India, over $800 billion is tied to non-India-dedicated funds. These funds tend to react more to broader emerging market (EM) trends, especially those related to China, rather than specific developments in India.
In relative terms, Jain believes India could perform better than other emerging markets during global outflows, as fund managers may shift allocations from China to India. However, he cautioned that absolute gains could be limited due to India’s higher valuations.
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