Jefferies Sees Long-Term Alpha Opportunities In Indian Markets

Near-Term Challenges in Indian Markets

So far this year, India has underperformed compared to other emerging markets. The market has faced several challenges such as:

Negative foreign portfolio investor (FPI) flows
Uncertainty around tariffs and trade
Weak domestic mutual fund sentiment

In the past year, the Nifty 50 index declined by 0.65%, while the Nifty Midcap 150 and Nifty Smallcap 100 fell 1.9% and 8.08% respectively.

Why Jefferies Remains Bullish

Despite these headwinds, Jefferies highlights several positive factors:

Earnings downgrades are easing
PE/G ratios are in line with regional peers
Growth expectations have normalized with a projected 10% EPS CAGR for FY26–27

Focus on Midcap and Smallcap Opportunities

Jefferies particularly favors midcap and smallcap stocks. These segments are expected to deliver higher earnings per share (EPS) growth compared to other Asian and emerging markets. Additionally, they are trading at lower PE/G ratios than large-cap stocks, which makes them attractive for investors looking for long-term alpha.

Investment Strategy Suggested by Jefferies

Instead of chasing extreme market factors, Jefferies suggests focusing on:

Compounders – companies with steady growth
Value laggards – stocks that are undervalued
Potential multibaggers – companies with high growth potential

Additionally, Jefferies has introduced long-short strategies for Specialized Investment Funds (AIFs) following recent regulatory changes, giving investors more flexibility in portfolio management.

Conclusion

While Indian equities face short-term hurdles, Jefferies believes the long-term story remains strong. Investors focusing on midcaps, smallcaps, and quality growth companies could benefit from significant alpha opportunities in the coming years.