Not Geo Risk, But Equity Glut Could Stall Markets: Jefferies’ Mahesh Nandurkar

The market’s muted reaction to the recent Israel-Iran conflict suggests investors aren’t viewing the geopolitical tensions as deeply disruptive. But the bigger worry now, according to Jefferies India Managing Director and Head of Research Mahesh Nandurkar, is the surge in equity supply, which could weigh on market momentum. 

Speaking to NDTV Profit, Nandurkar said, “From the market reaction you’ve seen today, it doesn't look like a scary scenario. Oil is up about 2%, so not alarming.” However, he cautioned that macro tailwinds like earnings growth and valuations are now competing with the sheer volume of equity being offloaded into the market.

In the second half of 2024, monthly equity supply crossed $7 billion, with May 2025 already hitting similar levels, he noted. “If the market stays where it is, this kind of supply will likely continue in the coming months, and that could cap market returns,” he said.

While domestic flows remain net positive, they have moderated. Foreign flows, on the other hand, have turned positive in recent months. “There is incremental interest globally, especially as investors move out of the US and Europe. India remains a prominent EM destination,” he added.

Jefferies remains constructive on sectors like defence, cement, and financials, while maintaining an underweight stance on information technology, Nandurkar said.

In defence, he sees a strong long-term opportunity, with India’s capital expenditure in the segment likely to rise 25% annually over the next five years. He acknowledged valuations are stretched, but said rising domestic allocations and early export traction support the theme.

Cement was identified as a potential “dark horse,” with pricing finally showing signs of improvement after nearly a decade. Nandurkar also flagged a possible Goods and Services Tax cut on cement and two-wheelers, once compensation cess payments to states end in March 2026.

In financials, Jefferies expects foreign interest to continue, particularly in banks and non-banking financial companies. “Despite rate cuts and pressure on net interest margins, banks have performed slightly better than the market this year,” he said.

On the flip side, Jefferies remains cautious on IT services. Nandurkar cited rich valuations and weak signals on discretionary capital expenditure from US corporates. “What we really need is visibility on rising discretionary spend from US clients, and we’re not getting that comfort yet,” he said.