Despite global market volatility, Jefferies remains optimistic about India’s economic outlook. The brokerage recently announced an ‘overweight’ rating, supported by five compelling reasons that suggest India is poised to outshine other emerging markets. As Jefferies notes, while exact index performance may be unpredictable, India’s relative strength is likely to shine through.

Limited Exposure to Major Economies

One of the primary factors contributing to Jefferies’ bullish stance is India’s minimal dependence on the US and Chinese economies. Exports to the US account for only 2.3% of India’s GDP, positioning the nation to weather potential downturns in these markets. Despite the US being India’s largest export partner, the modest trade surpluses minimize the risks associated with stringent US trade policies.

Competitive Tariff Landscape

While the US has levied a 26% tariff on Indian goods, this is significantly lower compared to the rates imposed on countries like China, Indonesia, and Taiwan. Jefferies believes that the Indian government is in a strong position to negotiate better conditions during bilateral trade discussions with the US, further cushioning the impact of tariffs.

Declining Oil Prices as an Asset

India, which relies heavily on oil imports, is benefiting from a sharp decline in Brent crude prices, which have dropped nearly 20% this year to around $60 per barrel. This price reduction is expected to enhance the country’s current account balance, offset potential losses from US trade, and provide the government with increased revenue through fuel duties.

Fresh Opportunities Amid Investor Withdrawal

Foreign portfolio investors have withdrawn $27 billion from Indian equities since September 2024. However, Jefferies views this trend as a potential opportunity. Many emerging market fund managers are currently neutral or underweight in their positions on India, meaning a shift in sentiment could lead to a significant influx of capital.

Support from RBI’s Liquidity Measures

The Reserve Bank of India (RBI) has adopted an accommodative liquidity policy, which indicates that there will be a continued surplus of liquidity in the financial system. Since December 2024, the RBI has infused ₹8.5 lakh crore (approximately 2.6% of GDP) into the economy, transforming a liquidity deficit into a surplus. This move is expected to facilitate lower deposit rates and bolster bank margins.

Sector Preferences for Investment

Jefferies has identified several sectors poised for growth, including banking, power, telecommunications, automotive, and real estate. Top stock picks from the brokerage include prominent players such as HDFC Bank, Axis Bank, Cholamandalam Investment, JSW Energy, Coal India, Bharti Airtel, TVS Motor, Eicher Motors, and Macrotech Developers. Recently, Jefferies also added NTPC to its recommendations in light of increasing power demand and Bharat Petroleum Corp. due to favorable crude oil conditions, while reducing exposure to Siemens India because of its non-power business mix.

In summary, Jefferies’ positive outlook for India underscores the nation’s resilience and potential as a favorable investment destination amidst global uncertainties. As economic conditions evolve, investors may find new opportunities to capitalize on India’s growth story.