Most Investors Are 'Underweight' On India, Says Jefferies

Jefferies says most foreign investors are 'underweight' on India even as policy reforms and GST benefits kick in. This comes at a time when the Indian market is ranked among the worst in the world when it comes to returns on a one-year basis.

In its latest Equity Strategy report, Jefferies highlighted that while a near-term bounceback is likely, the key focus for investors is to find bottom-up opportunities, especially as benchmark indices struggle to gain due to sluggish sentiment.

While the report acknowledges the telling impact of the recent GST cuts on consumption, it appears the impact has already been priced in, to an extent.

Trump tariffs have been another overhang for India, with the country facing some of the harshest tariffs in the world. However, Jefferies notes that the Indian government is utilising the tariff-driven concerns as a reform driver.

Jefferies adds that while most foreign investors are 'underweight' on India, valuations are now seen better in a regional context.

This comes after HSBC upgraded India to 'overweight', citing valuations are no longer a concern and even added a Rs 94,000 target for Sensex.

That said, weak corporate earnings remain a major concern for foreign investors, even as the government tries to boost consumption through recent GST cuts.

In the month of August, FPIs pulled out Rs 35,000 crore from Indian equity markets, the biggest selloff in six months.

Another key highlight from the report was the impact of GST cuts and how investors are seeing it.

The report adds that the impact of GST cuts is driving significant growth optimism among auto original equipment manufacturers (OEMs). Most of these auto OEMs are pegging mid-teens and above volume growth.

Lenders, meanwhile, expect pick-up post GST cuts and festive spending. Banks see asset quality to mostly remain stable or improve, with medium-term benefits from the rate cuts.