India's nominal GDP growth — which combines real output growth with inflation and is a key driver of revenue growth for companies — could accelerate to 11.5%-12% in FY27, according to Jefferies, a pace that would support stronger corporate earnings across the market.

Despite that supportive macroeconomic backdrop, the brokerage cautions that elevated valuations, rising equity supply, and potentially slower domestic flows could limit broad-based market gains. Domestic flows, particularly systematic investment plans (SIPs) into mutual funds, have been a major support for Indian equities in recent years, and any moderation in that stream of inflows would remove a key cushion for valuations. Jefferies favours select sectors — lenders, power, ports, and real estate — but characterises the current environment as one for selective stock picking rather than a broad market rally.

India remains expensive against emerging markets

A key constraint highlighted by Jefferies is valuation: Indian equities have historically traded at a premium to other emerging markets such as China, Brazil, and Taiwan, and that premium continues to persist, leaving limited room for further valuation-driven upside.

Equity supply could absorb fresh demand

Another headwind is the supply of equities. A steady flow of new share issuance — through IPOs, qualified institutional placements, and promoter stake sales — could absorb fresh investor demand, capping the upside for the broader indices even as earnings improve.

Banks: growth is strong, but normalisation is ahead

Within the banking sector, Jefferies notes that growth remains strong, though a normalisation phase lies ahead, tempering expectations for continued outperformance.

Power: a major opportunity, but execution matters

The power sector is seen as a major opportunity, driven in part by India's rising electricity demand and ongoing capacity-addition programs, though the brokerage emphasises that successful execution of projects will be critical to converting that potential into results.

Ports: privatisation offers upside, but conversion is uncertain

In ports, ongoing privatisation efforts under India's asset monetisation program offer potential upside, but Jefferies flags uncertainty around how and when those opportunities will actually be converted into earnings.

Real estate: strong demand, but not a market-wide trigger

Real estate demand is described as strong, yet the sector is not expected to act as a trigger for a market-wide rally on its own.

Taken together, Jefferies' outlook points to an environment where robust nominal growth supports corporate earnings, but where investors may need to be selective rather than expect across-the-board gains. (Source: Economic Times Markets)