Jefferies Sees India as Prime for Sustained Long-Term Growth

In spite of recent turbulence in markets and worldwide uncertainties, India remains well placed for long-term wealth generation, as per a report published on Tuesday.

The research, drawn up by brokerage firm Jefferies globally, points out that small- and mid-cap stocks, especially, offer major growth opportunity, while large-cap stocks exhibit relatively modest upside.

Experts expect the auto industry to be among the major gainers of the GST cut announced recently, with demand likely to pick up after September 22. Auto shares already reacted positively and are likely to remain firm despite their current rise.

"The Indian market is gradually picking up pace, with hopes of an earnings pick-up following the newly announced GST 2.0 reforms," the brokerage added.

Jefferies pointed out that although the Nifty has fallen 0.65 percent over the past year and small- and mid-cap indices have also faced corrections, the broader market appears poised for stronger performance in the near future.

Factors such as easing earnings downgrades, attractive valuations, and a sharp decline in India’s premium relative to other emerging markets are seen as key positives.

"Slowing down in earnings downgrades, reasonable valuation multiples, and steep declines in India's valuation premium vis-à-vis other emerging markets are making the environment more balanced," the report noted.

The brokerage estimates corporate profits in India will expand at a 10 percent annual rate from FY26 to FY27.

In terms of market strategy, Jefferies recommended investors avoid placing outlandish bets, citing that "compounders" have performed the most strongly this year. Opportunities also exist in lagging stocks as well as latent multibaggers with the ability to create high alpha.

While this, along with flat returns in markets, has revived interest in special investment funds (SIFs) among high-net-worth individuals, recent SEBI regulations allow unhedged short positions of up to 25 percent of net asset value in these funds.

Jefferies also mentioned that it is introducing fresh long-short and short-only strategies in this space, using factors like momentum, earnings revisions, free cash flow, valuations, and size of the company.