GREED & fear: Indian equities have turned into a “relative-return disaster” in 2025, according to , Global Head of Equity Strategy at Jefferies, who flagged persistent foreign selling, stretched valuations and rising political populism as key risks to the market’s stability.
In his weekly note, Wood said India’s underperformance versus emerging markets this year has been stark, even though domestic inflows have prevented the market from slipping into deeper losses.
“India has only been a relative-return disaster this year, in terms of underperforming the MSCI Emerging Markets Index by 27 percentage points year-to-date, as opposed to an absolute-return disaster. This is because of the continuing remarkable resilience of domestic inflows,” Wood wrote.
Rupee May Have Bottomed, Macro Outlook Improves
Despite the stock market’s struggles, Wood believes the macro backdrop is beginning to improve. He sees a growing likelihood that the has bottomed, even after becoming the worst-performing major EM currency year-to-date.
Jefferies expects India’s current account deficit to narrow to 0.5 percent of GDP in FY26, the lowest level in two decades. Foreign exchange reserves remain strong at USD 690 billion, equivalent to 11 months of imports.
But he warns that state-level political giveaways threaten currency stability. The , he says, has amplified fiscal stress, with competing promises ranging from a Rs10,000 cash transfer per household woman to Rs30,000 annually for five years plus electricity subsidies.
“This is not sustainable in a state with per capita income of ₹69,321,” Wood wrote, calling Bihar “a stress test” for India’s fiscal credibility. While the Centre’s deficit is projected at 4.4 percent of GDP, the consolidated deficit with states widens sharply to 7.5 percent.
Foreign Selling Continues, Domestic Money Holds the Market Up
Jefferies highlights that even as macro indicators stabilise, foreign investors have pulled out USD 16.2 billion from this year, one of the strongest bouts of EM outflows. Yet the benchmarks remain resilient thanks to local investors.
“The Indian market today is being supported by domestic flows on a scale that is unprecedented in emerging markets,” Wood writes.
Indian mutual funds alone saw ₹321 billion of inflows in October, while total domestic inflows—including retail and institutional money—averaged USD 7.4 billion per month this year. Jefferies notes that locals are essentially soaking up the entire supply of new equity issuance, insulating the market from sharper corrections.
Cyclical Recovery Possible, but Valuation Risks Rising
Jefferies remains cautiously optimistic on India’s cyclical outlook. The firm notes that credit growth has rebounded from 9 percent in May to 11.5 percent by mid-October, aided by monetary easing and the GST rate cuts effective September 22.
Mahesh Nandurkar of Jefferies says, “The building blocks for a cyclical recovery are in place, but the follow-through is critical.”
However, Wood warns that equity valuations will become increasingly vulnerable if nominal GDP growth does not pick up in the coming quarters.
Real Estate Emerges as a Bright Spot
One sector where Jefferies sees genuine value is , calling it a rare pocket of attractive valuations in an otherwise stretched market.
Property analyst Abhinav Sinha said, “Developer valuations are near one standard deviation below long-term averages, even as pre-sales accelerate.” He added that developers are at their strongest balance-sheet position in a decade, with net debt falling from Rs520 billion in FY19 to an estimated Rs28 billion by March 2026.
IT Services Remains India’s AI Vulnerability
Wood identifies the as a weak link in India’s AI narrative. Revenue growth for listed IT companies slowed to 1.6 percent year-on-year in Q2 FY26, triggering a valuation de-rating. By contrast, he noted that India-based Global Capability Centres (GCCs) are steadily expanding their contribution to the services economy.
Portfolio changes
GREED & fear has also implemented several adjustments to its long-only portfolios this week. The note stated that the holding in France’s Saint-Gobain will be exited and replaced with an investment in Japan-based video game company Nintendo across both the global and international long-only equity portfolios. Nintendo has already been part of GREED & fear’s Japan long-only portfolio since 1 May.
For the Asia ex-Japan long-only equity portfolio, the report said the position in will be removed and substituted with an investment in Samsung Life Insurance.
In the China long-only portfolio, GREED & fear will remove the investment in KE Holdings, increase exposure to Advanced Micro-Fabrication Equipment by one percentage point, and add a new position in AI chipmaker Cambricon Technologies with a 4 percent weighting.
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