Indian equities may be poised for a brief rebound after lagging behind emerging-market peers for the past year, Jefferies said in a note this week, highlighting domestic liquidity, improving valuations, and a potential earnings boost in the September quarter.
The MSCI India Index has underperformed the MSCI Emerging Markets Index by 24 percentage points over the past 12 months – the steepest gap in 15 years. Jefferies analysts Mahesh Nandurkar, Abhinav Sinha, and Priyank Shah believe this historical dislocation could set the stage for a bounce.
“Following a significant (15-20%+) underperformance, MSCI India tends to bounce relatively speaking,” the brokerage said.
Jefferies identified key stock picks for this short-term rally, including Lodha, Cholamandalam, Adani Energy, Shriram Finance, Jubilant FoodWorks, Mankind Pharma, NTPC, and Crompton Greaves Consumer Electricals. It also reiterated its “high conviction” call on cement stocks, citing a recovery in pricing.
Indian equity valuations, which peaked at a 90% premium to emerging-market peers in March-April, have now returned to a 10-year average of 63%. Broader market metrics such as the bond yield-earnings yield gap also suggest valuations are more grounded.
Domestic inflows remain a critical support. Mutual fund equity investments surged 75% in July to $6.4 billion, more than twice the average for the previous quarter. Other domestic institutions – including insurers and ETFs – added $2.8 billion monthly on average in 2025, compared to $1.6 billion last year.
Foreign investors, by contrast, remain underweight India, with their allocations near decade lows. “This setup provides downside protection and a sentiment boost,” Jefferies said.
A seasonal earnings recovery is also expected in the September quarter, driven by last year’s low base and an earlier Diwali. But Jefferies cautioned that the rally may not be durable. “The bounce, however, may not sustain for long due to the weak value vs growth equation and equity supply concerns,” the analysts noted.