Indian equities may be set for a brief recovery, with Jefferies arguing that stronger domestic inflows, a likely surge in September-quarter earnings, and easing U.S.-India trade frictions could nudge the Sensex and Nifty higher in the near term.
Jefferies cautioned, however, that questions around sustainability remain, given an unfavourable value-vs-growth setup and looming equity supply.
To position for the potential bounce, Jefferies highlighted a basket of stocks it believes can benefit from improving flows and earnings visibility: Lodha (Macrotech Developers), Cholamandalam, Adani Energy, Shriram Finance, Jubilant FoodWorks, Mankind Pharma, NTPC, and Crompton Greaves Consumer Electricals. In addition, Jefferies reiterated its “high conviction” stance on the cement space, citing a pricing-led recovery that can support margins and earnings despite cost variability.
Furthermore, Jefferies also pointed out that the MSCI India Index has trailed the MSCI Emerging Markets Index by 24 percentage points over the past 12 months-the widest gap in 15 years. According to Jefferies, history suggests that after such stretches of 15-20% (or more) relative underperformance, India typically enjoys a period of catch-up. The house believes that set-up-combined with supportive domestic flows-makes a short-lived rebound plausible.
Valuations
On the valuation front, Jefferies noted that India’s premium to EM peers, which had spiked to about 90% in March-April, has rolled back to its 10-year average near 63%. While MSCI India’s forward P/E is still roughly 10% above its long-term mean, Jefferies highlighted that broader gauges-especially the bond-yield to earnings-yield gap-have reverted to historical norms. In Jefferies’ view, this reset removes a key overhang and gives room for a tactical upswing even if long-term multiples remain full.
Doemstic and Foreign investors
Jefferies underscored the pivotal role of local investors. Equity mutual fund inflows jumped 75% month-on-month to $6.4 billion in July-more than double the April-June monthly average. Beyond MFs, other domestic institutions (insurers, ETFs and AIFs) have been consistent net buyers, averaging $2.8 billion per month this year versus $1.6 billion in 2024. Jefferies called these flows “a big downside protection and a sentiment booster,” noting they help counterbalance intermittent foreign selling pressure.
Moreover, Jefferies also stated foreign portfolio investors’ India weights sit near decade lows. Large EM funds are just 0.2 percentage points overweight India versus the benchmark-well below the ~2.5-point long-term average and far from peaks above 4 points. Jefferies argued that even a modest shift back toward average positioning could add incremental fuel to any near-term bounce.
September-quarter earnings could deliver a pop
Jefferies expects a visible earnings pickup in the September quarter. The brokerage attributed this to a low base (last year’s election-related slowdown in government spending) and an earlier Diwali this year, which can pull forward festive demand into Q2. Jefferies added that while these seasonal and base effects should aid prints in the near term, they are likely to fade in the December quarter.
But the rally may be short-lived…
Despite the constructive near-term setup, Jefferies warned that the bounce may be fleeting. The brokerage pointed to an unfavourable value-vs-growth equation-where premium growth names remain rich relative to value-and to concerns over equity supply that could absorb liquidity. In Jefferies’ assessment, these factors cap the runway for a sustained re-rating unless global risk appetite and foreign participation improve meaningfully.