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Chris Wood from Jefferies: high valuations and the rush towards IPOs pose risks to Indian markets

Christopher Wood, Head of Global Equity Strategy at Jefferies, warned of high valuations, particularly in the mid-cap sector and a new wave of stock supply through IPOs as major risks to Indian equity markets.

In his latest investment note titled 'Greed and Fear', he stated that the recent market surge since April has pushed valuations to high levels, especially in the mid-cap sector.

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The Nifty 50 index has risen by 14.1% from its low on April 7 and is currently trading at 22.2 times the future earnings for the next 12 months, while the Nifty Midcap 100 index has increased by 23.7% during the same period, with its valuation rising to 27.1 times future earnings.

For this reason, companies are also reinvesting their funds in stocks to take advantage of these valuations. An equivalent of $7.2 billion in stocks was raised last month, and $6 billion so far in June. Wood noted that this supply is the main risk to the market.

The monthly issuance size of stocks was around $7 billion before the correction