According to Jefferies, the market is likely to remain range-bound in the coming year due to the interplay of persistent equity supply and resilient demand from institutional and retail investors. This dynamic, the firm notes, is expected to help the market absorb supply without creating significant disruption.
India’s relative performance against other emerging markets is expected to strengthen in calendar year 2026, supported by a strong rebound in earnings growth, sustained momentum in domestic flows and stability in the rupee.
The brokerage believes that the improved EPS growth will act as a key cushion for the market, helping offset supply pressures and keeping the index performance on track. Its 28,300 target is based on a forward multiple of 20x on estimated December 2027 earnings, factoring in a modest 5% d-rating.
With this view, the brokerage has highlighted its top 10 picks, which include Axis Bank, Bharti Airtel, Chola, TVS Motor, M&M, Ambuja Cements, Lodha/GPL, Max Healthcare, JSW Energy and GMR.
Jefferies highlighted that India outperformed the EM index by 27% in calendar year 2025 while its valuation premium over EMs declined from 90% to 64%, bringing it closer to the historical average. The company attributed this outperformance to an expected turnaround in the EPS growth cycle, noting that if global artificial intelligence (AI) investment picks up, India is likely to be less impacted and may continue to outperform.
Additionally, the potential normalization of trade relations between India and the United States is expected to encourage higher foreign portfolio investment (FPI) inflows.
Jefferies forecasts MSCI India EPS growth to pick up to 13-14% in FY27 from 8-9% in FY26. This improvement factors in the expected 2-3% contribution from potential interest rate cuts in line with historical trends. The brokerage identifies banks, auto, power, cement and telecom as key sectors that will lead this EPS growth. It cites factors such as GST-based benefits and low base effect, near the bottom of the policy rate cycle.
In particular, cement and telecom are expected to post robust earnings growth of around 25% or more in FY26 and FY27.
Jefferies also believes that higher inflation in the past year could act as a tailwind for both corporate revenue and earnings growth in the coming years.
On the currency front, Jefferies believes the worst is over for the Indian rupee. During CY25TD, INR depreciated by 5.1% against USD. However, the Reserve Bank of India (RBI) increased its foreign exchange reserves by $45 billion, bringing it back to 2024 levels.
India’s current account deficit (CAD) is projected to remain low at 0.6–0.7% of GDP in FY26/FY27, supported by lower oil prices and stronger services exports, particularly from the GCC region. Gross foreign direct investment (FDI) is also expected to improve and net foreign direct inflows may strengthen in the near term. As a result, Jefferies expects INR Rs. Expected to stabilize in the range of 89-90/USD.
Addressing the real estate cycle, the brokerage said the housing cycle is not over, but on a temporary hiatus. While growth in residential volumes slowed during 2024-25, Jefferies believes the upcycle that began in late 2020 still has legs. Falling interest rates, improving affordability, low inventory, limited investor demand and the return of middle-income buyers are expected to support the recovery in residential real estate, potentially driving 10% growth in volume.
On the liquidity front, Jefferies emphasized the strength of domestic inflows, which average $7-8 billion per month. These inflows include contributions from mutual funds (including SIPs), insurance, pensions, provident funds, AIFs and direct retail investors. Jefferies expects these flows to remain strong, supported by rising household savings, which have touched $1 trillion annually.
This continued inflow of domestic capital is expected to offset the potential impact of equity paper supply, which has also remained steady at similar monthly levels.
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(disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. (These do not represent the views of The Economic Times)
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