Top 20 stocks account for 28% of India's market cap, lowest since 2020: Jefferies

Jefferies, in its latest GREED & Fear note, said the top 20 Indian stocks now account for just 28 per cent of the country's total market capitalisation (m-cap), the lowest since 2020. This stands in sharp contrast to global markets, where the top 20 stocks have steadily increased their share of world market capitalisation amid concentrated AI-driven bets.

Jefferies said smallcap and midcap stocks are outperforming largecaps in India. This feature of the Indian market is the opposite of the trend globally where market action has concentrated around stocks geared to AI, or at least perceived to be geared to it, the foreign brokerage said on July 16.

"If this is an interesting development, the message of the report is that it has become time on a tactical basis for some mean reversion," Jefferies said.

Jefferies said earnings growth for largecap indices Nifty 50 and Nifty 100 is forecast to rise to an annualised 14-15 per cent in the next two fiscal years compared with an annualised 8 per cent in the last two fiscal years ended March 31, 2026. Midcaps are projected to maintain an annualised 20 per cent earnings growth for the next two years compared with 18 per cent in the last two fiscal years. 

As for the valuations, the Nifty 100 large cap index’s one-year forward PE is currently at a 33 per cent discount to the Nifty MidCap 150 index’s forward PE, much higher than the 10-year average discount of 20 per cent.

Jefferies said the massive outperformance of small and midcaps are seen at a time when the large caps have lacked obvious compelling thematics. It said Nifty MidCap 100 Index has risen 99 per cent since the start of 2023 while the Nifty Index is up “only” 33 per cent over the same period. 

Jefferies’ head of India research Mahesh Nandurkar on July 9 said the outperformance of small and midcaps in India has been fundamentally driven in the sense that it reflects superior EPS growth. 

Midcaps have also been supported by continuing inflows into domestic equity mutual funds though they slowed in the last two months. 

Meanwhile, Jefferies said India as a stock market has remained the inverse AI trade, while there has been a further negative in recent months in terms of the country’s dependence on imported energy in the context of the continuing negative ramifications from the US-Israel attack on Iran.

In absolute-return terms India as a market has been less disastrous, most particularly from the standpoint of domestic investors in rupee terms, it said.