Gold at $10k, SIP flows, smallcaps outlook: Chris Wood's India mkt playbook

Over a five- or 10-year view, if I were an Indian mutual fund investor, it makes sense to allocate half of your inflows into small- and mid-cap funds, Wood said.

In the absence of the geopolitical variable, one should get around 15 per cent returns from the Indian markets over the next one year— returns broadly in line with earnings growth, Christopher Wood, global head of equity strategy at Jefferies, told Puneet Wadhwa in an in-person interview at Gurugram on the sidelines of their India Forum. The biggest India-specific issue for foreigners is the capital gains tax in India, he added. Edited excerpts:

With US 10-year bond yields at 5 per cent and US Fed hiking rates, do you see the investment case for equities weakening?

That is a threat to the investment case. In my view, if the Federal Reserve had not raised rates on September 16, the bond market would have been at risk of a bigger sell-off, which could have had a cascading effect on equities. If we comprehensively break the 5 per cent level, that raises the risk for equities.

At what level would the markets become really uncomfortable with US bond yields?

The markets will start getting uncomfortable if we break above the current level. We are right at the key level now, around 5 per cent. If yields were to move towards 5.5 to 6 per cent, I think the market would become very uncomfortable. The stock market wants to ignore rising bond yields, but 5 per cent is a level that becomes difficult to ignore. The reason the US markets have remained so resilient is that earnings growth is very strong.