Greed and Fear: Chris Wood reshuffles India portfolio, adds IndiGo; sees more pain in midcaps | Stock Market News

Amid the ongoing market downturn, veteran global fund manager Chris Wood of Jefferies has made adjustments to his India long-only portfolio.

Portfolio Changes

In his latest “GREED & FEAR” note, Wood announced the inclusion of InterGlobe Aviation Ltd., the operator of IndiGo, with a 4 percent weighting in the India long-only portfolio. This adjustment is financed by the removal of Coal India Ltd. and a reduction in the allocation to Thermax Ltd. by one percentage point.

Additionally, Jefferies has trimmed its exposure to ICICI Bank Ltd. in the global long-only equity portfolio by one percentage point, reallocating the funds to Chinese technology giant Alibaba Inc.

Market Trends and Observations

Wood attributed the recent decline in Indian markets to technical factors, specifically multiple compression, rather than significant macroeconomic concerns. He noted that the Nifty has declined 14 percent from its peak, while the Midcap index has dropped 21 percent, with foreign selling acting as a major driver of the downturn.

The sell-off has been particularly concentrated in high-beta domestic cyclical sectors such as property, infrastructure, and industrials, which had outperformed significantly in the previous year.

“That is why, GREED & fear’s India portfolio, which is heavily positioned in these sectors, outperformed the Nifty by 18.7 percent in US Dollar terms on a total-return basis till December 17, but has underperformed by 12.1 percent since then,” Wood wrote in his note.

Market Outlook and Potential Recovery

Despite the correction, corporate balance sheets remain underleveraged, and banks continue to show a willingness to lend. Jefferies pointed out that, besides foreign portfolio outflows, another key challenge for the stock market has been monetary tightening, which has now ended. Third-quarter results have largely aligned with fiscal 2025 Nifty earnings per share (EPS) forecasts, with only a minor downgrade of 0.4 percent.

Wood also highlighted that a potential easing by the US Federal Reserve could be a significant relief for emerging market assets, including India. He suggested that a weaker US dollar would benefit these markets, particularly if former US President Donald Trump were to return to power.

The Nifty heads into the March series after five consecutive months of losses. Wood expressed confidence that mutual fund inflows will continue, given that most are driven by systematic investment plans (SIPs). He added that the Modi government has taken a more “populist” turn in its third term, doling out handouts that will be a positive for rural consumption, as well as personal income tax cuts for urban consumers. It will also be premature to give up entirely on a private sector capex cycle, which is the current mood of the moment, according to Jefferies.

Risks for Midcaps and Small-Caps

Furthermore, he warned that the correction in small- and mid-cap stocks may not be over yet, suggesting more downside pressure if dedicated funds start showing year-on-year losses. On the current trajectory, this risk could materialize in approximately three months.

Wood also emphasized that for the recent market correction to truly conclude, mid-cap stock valuations must align more closely with blue-chip companies. He noted that such a shift would restore investor confidence, particularly if US equities face additional downward pressure.

Overall, Indian equities navigate a challenging phase, Chris Wood’s portfolio adjustments signal a shift in strategy amid heightened volatility. While large-cap valuations offer relative stability, midcaps remain vulnerable to further corrections. Investors will closely watch policy developments, global monetary trends, and fund flows for cues on market recovery.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.