Global brokerage firm Jefferies has forecast a short-term rebound in Indian equities, citing a combination of strong domestic inflows, improving earnings visibility, and easing trade tensions between India and the United States. While the recovery is expected to be brief, Jefferies believes the current setup offers tactical opportunities for investors, especially in select high-conviction stocks.
Market Context: A Year of Underperformance
Indian equities have lagged behind their emerging market peers over the past year. The MSCI India Index has underperformed the MSCI Emerging Markets Index by 24 percentage points—the widest gap in 15 years. Historically, such deep underperformance has often been followed by a catch-up phase, and Jefferies believes this pattern could repeat in the near term.
Key Drivers Behind the Predicted Rebound
1. Strong Domestic Inflows
- Equity mutual fund inflows surged 75% month-on-month in July to $6.4 billion—more than double the April–June monthly average.
- Other domestic institutions, including insurers, ETFs, and AIFs, have consistently been net buyers, averaging $2.8 billion per month in 2025 compared to $1.6 billion in 2024.
- These flows act as a buffer against foreign selling and provide sentiment support.
2. Valuation Reset
- India’s valuation premium to emerging market peers, which had spiked to 90% in March–April, has now reverted to its 10-year average of 63%.
- While MSCI India’s forward P/E remains about 10% above its long-term mean, broader valuation metrics—such as the bond yield to earnings yield gap—have normalized.
3. Seasonal Earnings Boost
- Jefferies expects a visible earnings pickup in the September quarter, driven by a low base (due to last year’s election-related slowdown) and an earlier Diwali, which could pull festive demand into Q2.
4. Foreign Investor Positioning
- Foreign portfolio investors’ India allocations are near decade lows.
- Large emerging market funds are just 0.2 percentage points overweight India versus the benchmark—far below the long-term average of 2.5 points and peak levels above 4 points.
- Even a modest rebalancing could add fuel to the short-term rally.
Jefferies’ Top 8 Conviction Picks
To capitalize on the expected bounce, Jefferies has highlighted the following stocks as high-conviction ideas:
- Lodha (Macrotech Developers) – Real estate play with strong execution and demand visibility
- Cholamandalam Investment & Finance – Benefiting from robust retail credit growth
- Adani Energy Solutions – Positioned for infrastructure-led expansion
- Shriram Finance – Strong presence in rural and semi-urban lending
- Jubilant FoodWorks – Consumer discretionary with brand strength and expansion potential
- Mankind Pharma – Pharma player with a growing domestic footprint
- NTPC – Defensive utility stock with stable earnings
- Crompton Greaves Consumer Electricals – Consumer durables with margin recovery potential
In addition, Jefferies reiterated its bullish stance on cement stocks, citing a pricing-led recovery that could support margins despite cost variability.
Caution: The Rally May Be Short-Lived
Despite the constructive setup, Jefferies warns that the rebound may not sustain for long. Key concerns include:
- An unfavorable value-versus-growth dynamic, with growth stocks still trading at rich valuations
- Rising equity supply that could absorb liquidity and cap upside
- Seasonal and base effects that may fade by the December quarter
Conclusion
Jefferies’ outlook suggests that Indian equities may be poised for a tactical upswing, driven by domestic liquidity, valuation normalization, and seasonal earnings support. However, investors should remain cautious, as structural challenges and global uncertainties could limit the duration of the rally.
For those looking to position for the short-term bounce, Jefferies’ conviction picks offer a curated basket of opportunities across sectors—from real estate and finance to consumer and energy.
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