Mahesh Nandurkar, the brokerage’s MD and Head of India Research, said while the growth broadened out across financials, autos and consumption, pushing earnings upgrades to their highest ratio in five years, the valuations still remain pricey.
Nandurkar said, “What has happened in this quarter is really a positive surprise. This is coming in despite the fact that the June quarter was marked by the tensions in the Middle East and the oil prices going up, the gas shortages, and all that. We were getting an inkling of that already because many of the other high-frequency economic data points that we were tracking were surprising on the positive side.”
Strong earnings, expensive market
Here’s the catch: good earnings don’t automatically mean good returns from here. Nandurkar was clear that he separates the two.
Indian equities are trading at around 20 times forward earnings for the broader market, with midcaps pricier still. Compared to the MSCI Emerging Markets index, Indian stocks now carry close to a 100% premium — meaning investors are paying roughly double what they’d pay for similar emerging-market exposure elsewhere.
Add to that a wall of new equity supply, with IPOs and share sales pulling in an estimated $7–8 billion a month, and Nandurkar thinks the market has already priced in most of the good news.
He added, “At the market level, we need to stay selective. The broad-based improvement in the economic performance and the corporate performance doesn’t necessarily mean that the market as a whole is going to do that well going forward.”
Where the earnings gap is closing
One trend Jefferies is tracking closely: the performance gap between large-cap and mid/smallcap stocks. Between FY24 and FY26, small and midcap companies grew earnings by about 18% a year, more than double the 8% clocked by largecaps — and share prices followed that split, with midcaps far outperforming.
Nandurkar expects that gap to narrow over FY27 and FY28, largely because of banks. Jefferies sees the banking and NBFC space as one of the few large-cap pockets where earnings are improving and valuations still look reasonable, which is why it’s a preferred holding right now.
The brokerage’s other big call is what it calls the “real asset” or “hard asset” theme — power utilities, real estate, and select ports and airports. That remains Jefferies’ top idea.
IT services, by contrast, has been downgraded to neutral in the past couple of months; Nandurkar isn’t bearish on the sector, just no longer bullish.
Gold’s comeback, and the risk from bond yields
Asked specifically about gold financing companies—a sector that has rallied strongly this year—he said gold, as an asset class, is making a comeback.
Rising global inflation worries, climbing US bond yields, and the possibility of rate increases in India are all supportive of gold and gold-linked businesses, he said.
For the entire discussion, watch the accompanying video
