Jefferies Views India as 'Reverse AI Trade' Amid Earnings Rebound

Jefferies define India as "reverse AI trade," in their Asia Maxima report, since the AI craze diminishes throughout Taiwan, Korea and China. Those countries have a combined 61.5% stake in Emerging Markets (MSCI), while India has only 15.3%. 

This follows 2025's data, which showed India's 30-year high relative increase, as MSCI India rose by 4.3% in U.S. Dollars and Australian Dollar terms, compared with 30.2% increase for the Asia Pacific ex Japan and 34.4% increase for the entire emerging markets universe.

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Earnings Acceleration Expected

The brokerage anticipates that the earnings growth per share (EPS) for MSCI India will rise by 13-14% for the Fiscal Year ending April 2026, from the current year EPS growth of 8-9%. Nifty trades at 20.4x forward earnings, mid-cap stocks trade at 28.5x forward earnings based on improved expectations. 

Credit growth increased from 9% Year on Year (YoY) in May of this year to 12% as of mid-December, as a result of easing credit conditions and the September 22 GST reductions; these will be significant indicators of the potential for a growth rebound.

Rupee Resilience and Macro Supports

The Rupee appears to have hit its lowest point after trading down to a 90/ US dollar benchmark, supported by the current account deficit (which is only 0.6% of GDP), which represents a 20-year low, combined with Foreign Reserves, currently at $697 billion (equal to 11 months of Indian imports). 

The Trade Deficit reached $282 billion in 11 months, representing a rise of 11.3% YoY, which could place American products at risk for being assessed with 50% tariffs. The Gross Foreign Direct Investment to India rose steadily from approximately $81 billion in FY25.

Domestic Flows Offset FII Exit

The 10.5% rise in Nifty was due to an inflow of ₹4.1 lakh crore into equity mutual funds during a period of 11 months, which averages out to $7.4 billion per month, against ₹1880 crores in FII selling and ₹680 crores in equity issuance.

Risk/Opportunities 

IT services are expected to have 4% Revenue Growth in FY25, and Q2FY26 will have a 1.6% Revenue Growth for BSE IT at 23.7 times the forward PE multiple, which has come down from 31. RBI's Policy on Interest Rates has changed from Hawkish to Dovish under Governor Sanjay Malhotra, where they cut the Repo Rate 125 basis points to 5.25% as a result of CPI falling below 1% (October Low of 0.25%). The Real Estate Sector seems to be showing improvement, with an increase in pre-sales and a reduction in net debt.