Jefferies sees value in real estate, calls IT a weak link in India’s overheated equity market

Indian equities have become a “relative-return disaster” in 2025, underperforming the MSCI Emerging Markets Index by 27 percentage points year-to-date, Jefferies’ Global Head of Equity Strategy Christopher Wood wrote in his GREED & fear note. While domestic inflows have kept absolute losses in check, Wood pointed to persistent foreign selling, elevated valuations, and rising political populism as key threats to market stability.

“India has only been a relative-return disaster this year... because of the continuing remarkable resilience of domestic inflows,” he said.

Despite the drag in equities, Jefferies sees the macro environment improving. The rupee, the worst-performing major EM currency so far, may have bottomed. The firm forecasts India’s current account deficit will shrink to 0.5% of GDP in FY26, a two-decade low, while forex reserves remain robust at $690 billion.

However, Wood flagged rising fiscal stress at the state level, especially in Bihar, as a risk to currency stability. Promises like a ₹10,000 cash transfer per household woman and ₹30,000 annual aid for five years, on top of power subsidies, could destabilize state finances.

“This is not sustainable in a state with per capita income of ₹69,321,” he wrote, calling Bihar “a stress test” for India’s fiscal credibility. Jefferies estimates the consolidated fiscal deficit, including states, at 7.5% of GDP versus the Centre’s 4.4%.

Even as foreign investors have pulled $16.2 billion from Indian equities this year, domestic inflows—averaging $7.4 billion monthly—have provided strong support. Indian mutual funds alone attracted ₹321 billion in October.

“The Indian market today is being supported by domestic flows on a scale that is unprecedented in emerging markets,” Wood noted.

Jefferies is cautiously optimistic on India’s cyclical outlook, citing a rebound in credit growth to 11.5% in mid-October and the GST rate cuts from September. But Wood warned that valuations are vulnerable if nominal GDP growth doesn’t accelerate.

He sees value in real estate, calling it a rare opportunity in an otherwise expensive market, and flagged IT services as a weak spot due to slowing revenue growth and valuation pressures.

GREED & fear also announced portfolio changes this week. France’s Saint-Gobain will be replaced with Japan’s Nintendo in both global and international portfolios. In Asia ex-Japan, JSW Energy will be swapped for Samsung Life Insurance. In China, KE Holdings will be exited, exposure to Advanced Micro-Fabrication Equipment increased, and a new 4% position added in Cambricon Technologies.