Jefferies: India Nominal GDP to Hit 12% in FY27 But Elevated Valuations Cap Broad Market Upside

The Quick Take

• India nominal GDP growth forecast to accelerate to 11.5-12% in FY27, per Jefferies, supporting corporate earnings but not necessarily broad market returns.
• Elevated equity valuations, rising share supply, and potentially slower domestic fund inflows are identified as headwinds limiting Sensex and Nifty gains.
• Jefferies favours lenders, power, ports, and real estate as selective plays within a cautiously positioned India equity strategy.

Jefferies FY27 outlook for India acknowledges a robust macro backdrop — nominal GDP growth of 11.5-12% driven by inflation normalization and real output expansion — but flags a structural disconnect between economic growth and equity market returns. This divergence is well-documented in Indian markets: strong GDP growth has historically been partially offset by dilutive equity issuance and rich starting valuations. Jefferies selective sector calls reflect a shift from the 2023-2025 broad-based rally to a more stock-picker-friendly environment as macro tailwinds plateau and company-specific execution becomes the primary return driver.

Sectors that Jefferies favors — lenders such as HDFC Bank, ICICI Bank, and Axis Bank; power utilities; ports including Adani Ports and JSW Infrastructure; and real estate names like DLF and Godrej Properties — stand to benefit from infrastructure spending tailwinds and credit cycle expansion even in a muted broader market. Foreign institutional investors who have been selective buyers of India over China may reweight toward these sectors. Rising equity supply, partly from government divestment and IPO activity, creates natural cap-rate pressure on valuation multiples, particularly in mid-cap and small-cap segments where issuance has been most aggressive.

The key data releases to monitor are India Q1 FY27 GDP and August CPI — both confirm whether the 12% nominal trajectory is on track and whether the RBI has space to cut rates further. Domestic mutual fund SIP inflows in September will reveal whether household participation continues to offset FII volatility. The macro variable that determines whether the bull thesis extends is the rupee — a stable or appreciating INR sustains FII allocations, while rupee depreciation toward 85 per dollar triggers capital flight from domestic equities.

Synthesized from 1 source.