Daijiworld Media Network - New Delhi

New Delhi, Oct 10: The Indian equity market is likely to outperform its regional benchmark despite a 15.6 per cent decline in dollar terms this year, while earnings growth could rise to 17 per cent in the next fiscal year, according to a report by Jefferies.

The report, Asia Maxima, authored by Chris Wood, global head of equity strategy at Jefferies, recommended a 12 per cent allocation to India against its 10.5 per cent weight in the MSCI AC Asia Pacific ex-Japan index.

In local currency terms, the Nifty has declined 13.4 per cent, making India the second-worst-performing market in the region after Indonesia, which has lost 42.3 per cent of its value.

Despite the market downturn, the report said India's structural growth story remained intact, with economic data showing remarkable resilience.

Wood projected real GDP growth of 6.5-7 per cent and nominal growth of 11-12 per cent in FY27. He also expected earnings growth to increase from 14 per cent this year to 17 per cent in the next fiscal year.

However, the report identified heavy share issuance as a key factor limiting the market's upside. Monthly equity issuance surged to $9.5 billion in August from $1 billion in April, absorbing mutual fund inflows of around Rs 38,800 crore per month.

“India was maintained as a slight overweight last quarter on evidence of a cyclical rebound in domestic demand. The neutral weighting has declined from 18.6 per cent at the end of 2024 to 10.5 per cent. Still, even after the recent underperformance, India has outperformed the Asia Pacific ex-Japan benchmark by 17 per cent since April 2020. However, valuations are still at a premium to the rest of the region,” the report said.

According to the report, MSCI India trades at 20.5 times its expected 2026 earnings, compared with the regional average of 12.4 times.

The report also highlighted strong credit growth as a sign of improving economic activity. Bank credit expanded 18.1 per cent year-on-year as of mid-September, while corporate loans rose 21.6 per cent in August. Loans to micro, small and medium enterprises grew 25.5 per cent, and deposits increased 17.3 per cent.

The pickup in corporate lending suggests that the long-anticipated private sector capital expenditure cycle may finally be taking shape, the report said.

Further evidence of improving investment activity came from machinery imports, which totalled $66 billion in the 12 months ended August, compared with $29 billion in FY21.

Other indicators also pointed to strengthening domestic demand. Goods and Services Tax (GST) collections rose 14.8 per cent in August, while power consumption increased 9.4 per cent during April-August, compared with 1.8 per cent growth in January-March.

Residential property sales across the top seven cities rose 7 per cent in the first eight months of the year, against a 1 per cent decline in 2025.

Wood also indicated that the Indian rupee may have bottomed out after declining 10.7 per cent since early 2025.