Global brokerage firm Jefferies has sounded a note of caution for India’s equity markets, stating that a large section of international investors remain “underweight” on India despite the country’s strong macroeconomic fundamentals. The report highlights that while near-term sentiment could trigger a bounceback in equities, the real focus for investors is now shifting toward bottom-up opportunities rather than broad market plays.
Why Are Investors Underweight On India?
According to Jefferies, foreign portfolio investors (FPIs) have scaled back allocations to India due to a mix of factors:
- High valuations compared to other emerging markets.
- Rising global interest rates making safer assets attractive.
- Geopolitical tensions and currency volatility.
- Concerns over earnings growth visibility in certain sectors.
This has resulted in lower-than-expected inflows into Indian equities over the past few months.
Short-Term Outlook: Bounceback Likely
Despite the cautious stance, Jefferies noted that India could witness a short-term rebound. Supportive domestic indicators — such as robust GST collections, strong credit growth, and government infrastructure spending — provide a cushion against global headwinds.
The brokerage believes that while investors are hesitant to go overweight on India just yet, the resilience of domestic demand could lead to a recovery in stock performance.
Focus Shifts To Bottom-Up Opportunities
Jefferies emphasized that the key theme for investors now is to identify stock-specific and sector-specific opportunities, rather than taking broad market positions.
- Banking & Financials: Expected to benefit from credit growth and improving asset quality.
- Capital Goods & Infrastructure: Supported by strong government push on capex.
- Consumer Discretionary: Driven by urban demand recovery and festive spending.
- Pharma & Healthcare: Attractive on valuation and global demand outlook.
Global vs Domestic Flows
The report also points out a growing divergence between FPI activity and domestic institutional investors (DIIs). While FPIs have trimmed exposure, DIIs and retail investors continue to remain bullish on Indian markets, providing stability against external shocks.
Jefferies’ outlook suggests that while India’s long-term growth story remains intact, foreign investors are still approaching with caution. The immediate opportunity lies not in chasing indices, but in carefully selected sectors and companies that can withstand volatility and deliver consistent earnings.
👉 For investors, the message is clear: focus on the bottom-up approach, where strong fundamentals and domestic growth drivers could outweigh global concerns.
