According to the report, India's underperformance has eased since the onset of the Iran war, both in the Asian and global emerging market context. The report noted, "India has just about stopped underperforming since the onset of the Iran War in both an Asian and global emerging market context."
India was among the worst-performing markets in Asia during Q1 2026, mainly due to strong foreign outflows rather than any major weakness in fundamentals. The report stated that India was the second-worst performer in the region after Indonesia. It said, "The first quarter was another quarter of disastrous underperformance for India in the sense that it was the worst performing market in Asia after Indonesia."
However, Jefferies highlighted an improvement in valuations, stating that the market's earlier premium has corrected significantly. India has moved from being "expensive" to "fair and nearing attractive" levels, marking a shift in its valuation profile.
The report also pointed out that most foreign institutional selling had already occurred earlier this year, indicating limited additional pressure from this segment.
Jefferies identified two key risks. On the external front, any escalation involving Iran could lead to a spike in crude oil prices, posing a risk for import-dependent India. On the domestic side, a slowdown in mutual fund inflows could weaken a key source of market support and increase volatility.
The brokerage added that India is no longer a crowded trade and is gradually emerging as a relative value play within defensive emerging market allocations. However, it maintained a cautious outlook, stating that overall conviction remains moderate rather than aggressive.
The assessment underscores a critical shift in India’s market positioning, balancing improved valuations against persistent external and domestic risks, as global investors recalibrate their strategies amid evolving geopolitical and financial conditions
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