The severe correction in Indian midcap and smallcap stocks is reflecting the real pain in the Indian economy, says Christopher Wood, Global Head of Equity Strategy at Jefferies.In an interaction with ETNow, he said midcap and smallcap stocks are the best plays on economic recovery as and when it happens. “We expect the economy to recover in next four quarters, and midcaps will start moving ahead of that,” he said. BSE Midcap and Smallcap indices are down 18 per cent and 31 per cent, respectively, since January 2018, while the benchmark 30-share Sensex is up 20 per cent.Wood is bullish on insurance and real estate stocks. “Insurance stocks potentially could do what private banks did in last 10 years. We also like realty stocks, which will benefit from RERA and have quality balance sheets,” he said.Insurance players like HDFC Life Insurance, ICICI Lombard General Insurance, ICICI Prudential Life Insurance and SBI Life Insurance gained 48 per cent, 72 per cent, 29 per cent and 38 per cent, respectively, between January 1, 2018 and December 6, 2019. On the other hand, General Life Insurance and The New India Assurance have slipped 35 per cent and 53 per cent, respectively, in the same period.Wood said he is biased towards Indian corporate banks right now as bulk of their provisioning cycle is over. “NPA issues for the banking sector gradually getting over,” he said.The Asian market veteran said India’s economic slowdown has been due to shock treatment of reforms. He called the collapse of growth this year in India as dramatic.“Structural reforms combined with NBFC liquidity squeeze and RERA impacted growth,” he said.The Reserve Bank of India recently lowered its growth forecast for this financial year to 5 per cent from an earlier estimate of 6.1 per cent on account of weak domestic and external demand.Wood said demonetisation followed by the implementation of goods and services tax (GST) caused a lot of pain to small entrepreneurs. “The market will be relieved if the government accepts the slowdown and let its fiscal deficit target expands,” he said.Commenting on global trade tensions, Wood said the US-China trade deal can trigger big flows into emerging markets. “If the US dollar peaks, then flows can continue to emerging markets.”He said he holds no view on 2020 until there’s clarity on US-China trade deal, but said gold can do very well due to central bank policies.