Stock market: Jefferies on India’s weakest relative run in 30 years, surprise weak rupee

Jefferies in its fresh GREED & fear note said the Indian stock market has recorded its worst relative performance in three decades so far in 2025, both within Asia and across emerging markets, alongside an unexpected bout of rupee weakness.

The brokerage noted that MSCI India has risen just 2.2 per cent in dollar terms on a total-return basis year to date, sharply underperforming MSCI AC Asia Pacific ex-Japan and MSCI Emerging Markets, which were up 25.90 per cent and 29.90 per cent, respectively.

Jefferies attributed the underperformance to a cyclical economic deceleration, with MSCI India earnings growth estimated to slow to around 10 per cent in FY26 ending March 31, 2026. This has been compounded by a 5.3 per cent depreciation in the rupee against the dollar so far in 2025, with the currency breaching the psychologically important 90 level in December.

Jefferies’ ‘Greed & Fear’ publication acknowledged surprise at the extent of the rupee’s weakness, though it said the currency could be nearing a bottom. The brokerage highlighted that India’s current account deficit for FY26 was forecast at a modest 0.6 per cent of GDP, close to a 20-year low, while foreign exchange reserves stood at a comfortable $687 billion as of December 5, equivalent to around 11 months of import cover.

Jefferies’ head of India research, Mahesh Nandurkar, argued in a separate note that there was no immediate cause for panic on the currency front, citing supportive external balances and reserve adequacy.

The brokerage added that gross foreign direct investment inflows remained healthy despite weak net flows, which continued to be weighed down by private equity exits and rising outbound investment. Gross FDI inflows rose 13 per cent year on year to $81 billion in FY25 and increased a further 16 per cent year on year to $50 billion in the first half of FY26. However, net FDI fell sharply from $10 billion in FY24 to $1 billion in FY25, before recovering to $8 billion in the April to September period.

Jefferies also flagged record foreign portfolio investor outflows, with foreign investors selling a net $17.8 billion of Indian equities so far in calendar 2025.

On risks to the currency, the brokerage warned that the continuation of 50 per cent US tariffs on Indian goods could further widen the trade deficit, which had risen 11.3 per cent year on year to a record $282 billion in the first 11 months of 2025. While the rupee’s depreciation had improved competitiveness at the margin, Jefferies said the currency remained relatively expensive on a long-term real effective exchange rate basis despite an 11 per cent decline from its November 2024 peak.

Jefferies also pointed to a more dovish monetary stance under RBI Governor Sanjay Malhotra, who had cut the policy repo rate by 125 basis points since February to 5.25 per cent. The brokerage said the easing cycle appeared justified, with CPI inflation slowing to multi-decade lows and real interest rates still elevated.