Jefferies forecasts sideways movement for Indian markets in FY26, banks and real estate poised to lead
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Indian equity markets are expected to experience a sideways trend in FY26, according to global brokerage firm Jefferies.
The firm attributes this outlook to a projected slowdown in India’s nominal GDP growth, which could result in downward revisions of corporate earnings estimates.
Jefferies anticipates nominal GDP to grow at just 9% in FY26—marking the slowest pace since FY2004, excluding the pandemic-hit years.
Although real GDP growth is expected to remain healthy at 6.5%, reduced inflation is likely to put pressure on key indicators like corporate revenues and credit expansion. The GDP deflator, which reflects inflation, is forecast to decline to 2.5% in FY26 from 3.3% in the previous year.
The brokerage noted that current nominal GDP growth patterns mirror those seen in 2019. While slower nominal growth typically translates into weaker corporate earnings, Jefferies expects a limited revival in corporate revenue growth during FY26.
Lower inflation is also likely to weigh on consumer and retail sectors, prompting the brokerage to maintain an underweight stance on staples.
Credit growth, which tends to move in tandem with nominal GDP, has already begun to reflect the softer economic conditions. However, Jefferies expects the Reserve Bank of India’s pro-growth policies to support a modest rebound in bank credit growth, forecasting it to reach 11–12% by March 2026.
Despite the broader market’s expected sluggishness, Jefferies highlighted that banks and real estate stocks have outperformed from January to December, delivering an 8% return on the MSCI India Index. The firm believes this trend will persist and maintains a bullish view on both sectors.
It also favors large-cap stocks over small-caps, noting that IT and oil & gas sectors have been in line with market performance, while small-cap stocks have struggled.
In contrast, lower nominal growth poses a challenge for consumer-facing businesses. Jefferies remains cautious on the sector, particularly staples, as it anticipates headwinds for revenue and profit growth.
