Picture abhi baaki hai, mere dost. This is basically Jefferies' position regarding Indian equities. Although the MSCI India index is down 15.6% in dollar terms for the year to date while the MSCI Korea index is nearly double its level, Jefferies has maintained a slight overweight position on India in its Asia Pacific ex-Japan portfolio.
According to the October 9 issue of Jefferies' quarterly Asia Maxima report authored by Chris Wood, Jefferies' global director of equity strategy, the reason for the overweight rating on India is "evidence of a cyclical rebound in domestic demand". An overweight rating means that Jefferies believes investors should allocate more funds toward a particular market than that market represents within the benchmark index.
Jefferies' allocation recommendation for India is 12.0%, as opposed to 10.5% for India in the MSCI AC Asia Pacific ex-Japan index. All market data included in the report extends through September 30. The dollar decline referenced above represents a 6.2% decrease in the value of the Indian rupee for the year to date. In local currency terms, the Nifty index is down 13.4%.
Among all markets evaluated in the report's regional rankings, India ranks as the second worst performing market (behind Indonesia), having lost 42.3% of its value.
READ | US Tariffs Drove FIIs Away From India? Jefferies' Chris Wood Reveals The Real Trigger
Arguments in Favor of India Based on Credit, Capex, and Earnings
Wood's report states that "the structural growth story remains intact" and describes the country's economic data as "remarkably resilient given the evident challenges posed by geopolitical events to a nation that is still a significant consumer of energy".
The first piece of evidence supporting Wood's argument relates to bank credit. As of mid-September, bank credit had expanded by 18.1% on a year-over-year basis. The report notes that this growth rate was "much better than anyone was expecting at the start of this year".
Corporate loans increased by 21.6% during August; loans to small, medium-sized, and micro industrial enterprises expanded by 25.5%; and deposits expanded by 17.3%.
However, Wood cautions that there is a base effect at play. He adds that the increase in small business lending may indicate that last year's introduction of the Goods and Services Tax (GST) and labor reforms, along with the Indian government's emphasis on simplifying the process of conducting business in India, "may be starting to see some dividends".
Jefferies interprets the growth in lending as an indicator of investment. "The pickup in corporate lending also suggests that the long-anticipated private sector capital expenditure cycle may finally be occurring," the report states. Capital expenditure refers to the amount of money spent by firms on purchasing plants and equipment. Gross fixed capital formation (investment) increased from 31.4% of nominal GDP in the four quarters ending December to 32.4% in the four quarters ending June.
Machinery imports totaled $66 billion in the 12-month period ending August, compared to $29 billion in fiscal year 2021.
Regarding growth, Wood expects India to achieve 6.5-7% real GDP growth and approximately 11-12% nominal GDP growth in the fiscal year ending March 31, 2027. Jefferies' India-based team projects that higher nominal growth will result in higher earnings growth for India, increasing from 14% this year to 17% next fiscal year.
Other data presented in the report provide further support for Wood's argument. GST collections grew by 14.8% during August. Power consumption grew by 9.4% during April-August, compared to 1.8% during January-March. Residential property sales in area terms in the top seven cities increased by 7% during the first eight months of the year, compared to a decline of 1% during 2025. Additionally, Wood believes that the rupee "may finally have bottomed" after declining by 10.7% relative to the dollar since the beginning of 2025.
READ | 'Hard To See Double-Digit Earnings Growth For H2 FY27,' Says JPMorgan's Rajiv Batra
India vs Emerging Markets: A 37 Point Difference
The MSCI Emerging Markets Index has increased by 21.4% in dollar terms this year, while MSCI India has declined by 15.6%, creating a difference of 37 percentage points. Most of this difference can be attributed to two markets. MSCI Korea has increased by 95.5%, despite a 10.1% decline during September due to "the sell-off in semiconductor stocks", and MSCI Taiwan has increased by 68.4%.
Jefferies attributes MSCI Taiwan's performance to "the boom created by the now more than three and a half year old AI capex arms race", i.e., the competitive spending race among technology companies for artificial intelligence (AI) infrastructure, and maintains an underweight position on MSCI Taiwan "due to the extent of its previous outperformance".
India Vs Emerging Markets
The earnings forecasts contained in Wood's report illustrate why MSCI India lags behind other emerging markets. Jefferies' tables show that MSCI Korea is expected to report earnings growth of 305.7% in 2026, while MSCI Taiwan is expected to report earnings growth of 58.2%, and MSCI India is expected to report earnings growth of 12.2%. MSCI India is also trading at 20.5 times its expected earnings for 2026, while the average trading multiple for all markets in the Asia Pacific ex-Japan universe is 12.4 times. Additionally, Wood believes that MSCI India "is still trading at a premium to all other markets in the region".
The decline referenced above has caused MSCI India to lose index weight. Wood states that MSCI India's neutral weighting in the regional benchmark "has declined from 18.6% at year-end 2024 to 10.5%". Nevertheless, since April 2020, MSCI India has outperformed its regional benchmark by 17%.
READ | Jefferies Sees A Reason for Indian Hotels To Cheer Louder In The Upcoming Wedding Season
Potential Limitations on Upside for MSCI India
Wood believes that heavy share issuance will serve as the primary constraint on upside potential for MSCI India. During 2026, domestic equity mutual funds have received approximately Rs 38,800 crore ($4.1 billion) per month on average; however, Wood believes that "these inflows continue to be absorbed by equity issuance which has picked up again in recent months". Monthly equity issuance declined to $1.0 billion during April following the outbreak of the Iran War; however, it subsequently increased to $9.5 billion during August. Wood believes that "this supply dynamic is having the practical effect of limiting upside potential for MSCI India".
Mid-caps have fared better but come at a higher price. The Nifty MidCap 100 Index has declined by 1.9% during 2026 as opposed to 13.4% for the Nifty Index. Additionally, the Nifty MidCap 100 Index is trading at 22.9 times its projected 12-month forward earnings, whereas the Nifty Index is trading at 17.0 times its projected 12-month forward earnings.
Additionally, Wood believes that the top 20 stocks' share of India's market capitalization has decreased from 44% in 2020 to 27%, which Wood believes represents "the complete opposite of trends globally as a result of the explosion in passive investment strategies". Wood believes that exposure to energy will remain a concern. Wood believes that although "the Strait of Hormuz remains effectively closed to most ships", Wood credits the Indian Government with "doing a good job avoiding potential disruptions in supply chains".
Russia's share of India's crude oil imports increased from 20% during February 2026 to 56% during July 2026. Goldman Sachs issued a note on October 8 where Goldman Sachs maintained a neutral stance on India with a 12-month target price for MSCI India of 25,800 points. Goldman Sachs believes that this represents an upside potential of 14%. Goldman Sachs believes that MSCI India's earnings will grow by 9% during 2026, which is lower than the consensus projection of 11%. Goldman Sachs has also lowered its projected 10-year earnings growth rate for MSCI India from 13% to 12%.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.