The veteran strategist’s cautionary tone comes as equity supply has surged to $7.2 billion last month and $6 billion so far in June, a pace that threatens to derail the market’s impressive recovery from early April lows.
“The rally in the market means that valuations have become an issue again, most particularly in the mid-cap space,” Wood said in his latest Greed & Fear newsletter. “This is also why corporates are again placing equity to take advantage of such valuations.”
Valuation Stretch Hits Critical Levels
The numbers paint a stark picture of just how stretched Indian equities have become. The Nifty now trades at 22.2 times 12-month forward earnings after surging 14.1% from its April 7 low, while the Nifty Mid-Cap 100 Index commands an even steeper 27.1 times forward earnings following a 23.7% gain from the same period.
Wood’s warning carries particular weight given his reputation as one of the most bullish foreign voices on Indian markets. His shift to caution underscores the gravity of the current supply-demand imbalance.
“It is this supply which poses the main risk to the market,” he warned, noting that equity supply was running at around $7 billion monthly prior to the correction that began in late September last year.
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Promoter Exodus Reaches Fever Pitch
The scale of the selloff has been staggering. Promoters, private equity, and venture capital investors have offloaded over Rs 40,000 crore worth of stakes in just two weeks of June, driven by daily large block and bulk deals that are set to surpass last month’s Rs 43,000 crore selling total.
Major transactions have dominated headlines: Vishal Mega Mart’s promoter sold a 19.6% stake to mutual funds in a Rs 10,220 crore bulk deal, Bajaj Finserv’s promoter offloaded approximately Rs 5,500 crore worth of shares, and Reliance Industries executed a Rs 9,580 crore stake sale in Asian Paints. Just two days ago, Hindustan Zinc’s promoter Vedanta sold about 66.7 million shares—representing 1.6% equity—in a block deal valued at Rs 3,028 crore.
Also Read | Promoter, PE & VC selling crosses Rs 40,000 crore in 2 weeks: Red flag for Nifty bulls?
Portfolio Reshuffle
Despite the supply concerns, Wood remains constructive on certain themes. He noted that market focus has rotated toward consumption rather than investment since the February 1 Union Budget announcement, helped by a more dovish monetary policy stance from new RBI Governor Sanjay Malhotra compared to his predecessor Shaktikanta Das.
“The Indian stock market has enjoyed a decent rally off the early April low, helped by evidence of a much more dovish RBI governor,” Wood observed, pointing to consumer finance stocks that have rallied sharply. Bajaj Finance, for example, has surged 35% year-to-date.
Wood maintains his bullish stance on real estate, keeping a 19% weighting in property developers in his India long-only portfolio despite the BSE Realty Index climbing 35% from its April 7 low. The sector remains 14% below its June 2024 peak, suggesting further upside potential.
A recent report by Jefferies’ India property analyst Abhinav Sinha forecasts pre-sales growth of the top seven covered developers to accelerate to 22% year-over-year in FY26 after slowing to 17% in FY25—a four-year low.
“Greed & Fear also believes that the property market, now in its 5th year of an upturn, has further to run,” Wood said.
Wood is making tactical adjustments to his India portfolio this week, removing investments in Larsen & Toubro, Thermax, and Godrej Properties while adding TVS Motor, Home First Finance, and Manappuram Finance with four percentage points each. He’s also boosting existing positions in PB Fintech and Bharti Airtel by one percentage point each.
The moves reflect a shift away from traditional investment themes toward more consumption-oriented plays, aligning with his view that the market focus has rotated from capex to consumer spending.
As India’s equity markets navigate this treacherous terrain of stretched valuations and relentless supply, Wood’s warning serves as a sobering reminder that even the most bullish investors are taking notice of the mounting risks.
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