Chris Wood's Greed & Fear: Domestic Flows Keep Indian Stocks More Resilient Amid Global Rout

The Indian stock market is much more resilient amid a selloff in the global market triggered by the unwinding of yen carry trades and expectations of aggressive rate cuts by the US Federal Reserve, Jefferies' Christopher Wood said in his latest 'Greed & Fear' note.

This strength for Asia's fifth-largest stock market has been driven by domestic money, whereas the opposite remains the case in Japan, the note said. About 26% of the GREED & fear global long-only portfolio is in India.

"There will be mounting pressure to sell private equity investments in India," Wood said. This is because Indian stocks are the only market with unambiguously healthy demand for equity in the context of the PE industry’s monumental pipeline of investments to sell globally, it said.

Asian markets witnessed heavy selling led by Japanese stocks as lower economic growth in the US spurred bets for aggressive rate cuts, which aided with the unwinding of Japanese yen carry trades.

An appreciating yen impacts the profitability of exports heavy Japanese stocks.

Trading in Japan's Topix saw a brief temporary halt after it hit a lower circuit of 7.5% during early trade. Equities in Australia and South Korea were in a rout, with South Korea's Kospi 200 trading 6.2% lower while Australia's S&P ASX 200 was 2.7% down of 9:14 a.m.

This comes after all major US stocks closed the week in the red as weak economic data pointed to an increased recession risk, raising fears that the Fed has waited too long to cut interest rates. 

"The moment that GREED & fear has been waiting for, for what seems like an eternity, finally arrived," noting the weakening in the US labour market at a time when inflation is still above target.

The reaction of the money markets shows that the Fed will prioritise the labour market over inflation, Wood said. "An intra-meeting cut, the first since March 2020, now looks likely."

The US jobs data showed that hiring had slowed markedly in July and unemployment had risen to the highest in almost three years. Economists at Goldman Sachs raised the probability of a recession in the next year to 25% from 15%.

Meanwhile, India's benchmark index—the NSE Nifty 50—climbed to a fresh record last week and had surpassed the key psychological barrier of the 25,000 mark, while Sensex rose past 81,500 last week.