- Jefferies views Indian equities as attractive after Middle East conflict-led correction
- Nifty trades at 17x forward earnings, a 12% discount to pre-Covid average
- Base case target is 25,000 with 10% upside assuming contained geopolitical risks
Jefferies has turned incrementally constructive on Indian equities, arguing that the recent Middle East conflict-led correction has brought valuations back to an attractive zone. The Nifty is now trading at around 17x the 12-month forward earnings, which is about a 12% discount to its pre-Covid (January 2015-20) average. This has prompted the brokerage to revisit its risk-reward framework.
While near-term earnings downgrades remain a key overhang, Jefferies believes the bulk of the reset is already in motion. It factors in FY28 earnings cuts of 4-5% for March 2027, largely led by Metals and Oil & Gas, with limited risk of deeper cuts for March 2028. The brokerage also flags that ongoing geopolitical tensions, particularly in the Middle East, could keep crude prices elevated, but sees only a modest earnings impact in its base case.
Base, Bull, And Bear Case
Jefferies' base case pegs the Nifty target at 25,000, implying ~10% upside from current levels. This scenario assumes a contained geopolitical environment over the next 6–12 months and a limited earnings downgrade cycle. Importantly, valuations could re-rate closer to ~18x forward P/E as uncertainty fades, supporting index gains even with modest EPS cuts.
In a more optimistic scenario where geopolitical risks ease swiftly, Jefferies sees a sharp re-rating potential. The bull case target stands at 28,000, implying nearly a 23% upside. This is driven by a normalization in oil prices, recovery in earnings visibility, and a return to 19x P/E multiples—closer to recent peak valuations.
On the downside, Jefferies sees the Nifty at 22,400—largely flat from current levels. This scenario builds in sustained high oil prices, further earnings cuts (10% CAGR downgrade for FY26–28), and a reversion to the long-term average multiple of around 16.8x. However, the brokerage emphasizes that downside appears contained, given already compressed valuations.
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Banks Overweight, Pharma Upgrade
Jefferies has increased its overweight stance on banks, calling them relatively insulated from global shocks. Large private and PSU lenders, like SBI, HDFC Bank, and Axis Bank, remain top picks, supported by stable asset quality and resilient credit growth. Pharma has also been upgraded, with Sai Life Sciences added to the model portfolio, taking the sector weight to neutral. The brokerage sees limited geopolitical disruption to pharma earnings and steady growth visibility.
On the flip side, Jefferies has trimmed exposure to Autos, Cement, and BPCL, citing margin risks from elevated input costs and crude-linked pressures.
Interestingly, real estate remains Jefferies' preferred contrarian play. Despite not being a consensus overweight, the sector continues to offer strong demand visibility, balance sheet improvement, and earnings momentum—making it a standout in a volatile macro backdrop.
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