Foreign Investors' Confidence in India: A Return to Market Participation?

Jefferies' GREED & Fear Report: India's Equity Market

Key Takeaways:

• Foreign investors are unlikely to return to India's equity market until there is a decisive correction or a clear unwind in global hardware tech stocks.
• Despite a decline in the Nifty (5.8% since early January peak) and MSCI India (8.3% in rupee terms from September 2024 high), domestic equity mutual funds recorded $51 billion in inflows in 2025, with $4 billion in January alone.
• National Pension System (NPS) flows are running at $1.4 billion per month and are projected to rise.

Earnings Acceleration Strengthens the Equity Case

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• Earnings growth for the universe of 198 companies under Jefferies coverage accelerated from 15% YoY in 3QCY25 to an 8-quarter high of 18% YoY in 4QCY25.
• Revenue growth improved to an 11-quarter high of 16% YoY.
• Jefferies expects 15% earnings growth for the MSCI India universe in the coming fiscal year, up from an estimated 10% in FY26.

IT Sector at Risk

• India's IT services industry, which employs around 6 million people, is at risk due to structural questions and private equity exposure to tech.
• Jefferies' software analyst maintains an Underweight stance, with Infosys trading at 17.2x forward earnings.

Domestic Flows Take Charge

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• The most compelling story for Indian equities is not foreign capital or macro tailwinds, but persistent domestic inflows and improving corporate earnings.
• Jefferies has replaced Manappuram Finance with Tata Capital, reinforcing a tilt toward domestic growth and financial deepening.

Conclusion

• India's equity narrative is increasingly homegrown, earnings-led, and structurally resilient, even as global uncertainties persist.