Jefferies has maintained a positive outlook on the Indian stock market despite the challenges faced in the short term. The brokerage believes that India continues to offer strong long-term growth opportunities, especially in the midcap and smallcap segments.
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.
