Stock Market Correction: Shocking Election Results, Tax Reconciliation Could Trigger Stock Correction on Dalal Street: Chris Wood, Jefferies

Christopher Wood, head of global equity strategy at Jefferies, said the “surprisingly bad outcome” of the general election and the capital gains tax changes in the upcoming July budget could trigger a short-term correction in Indian markets.

While the chances of the BJP suffering a shock defeat in the 2024 elections are “extremely low”, markets could correct a decline of more than 17% in two sessions since the 2004 election results, Wood said.

India’s general election results are due on June 4 and the ruling BJP is expected to return to power.

Wood added that a bigger risk to the market could be potential changes to capital gains tax that could be announced in the July Union Budget.

“The question is whether to increase tax rates, how long you can make long-term capital gains, or a combination of the two,” Jefferies said. Currently, short-term capital gains are taxed at 15% and long-term capital gains at 15%. If the holding period is defined as 1 year, it is 10%. Woods notes that another proposal would increase capital gains taxes for retail investors, but not mutual fund investors.