Synopsis : Despite expectations of stronger earnings growth over the next two years, most global emerging-market funds remain underweight on India. According to Jefferies, expensive valuations, currency concerns, and macro risks continue to outweigh optimism around India's long-term growth story.
India continues to be one of the fastest-growing major economies in the world, but global investors are still not fully convinced.
According to a recent report by Jefferies, a majority of emerging-market fund managers remain underweight on India despite expectations of stronger corporate earnings growth over the next two financial years.
The brokerage believes investor caution has likely increased further during the June quarter, highlighting that valuation concerns continue to dominate discussions around India’s investment attractiveness.
Most Global Funds Remain Underweight India
Jefferies analyzed 70 large emerging-market funds managing approximately US$320 billion in assets and found that nearly 61% of investors remain underweight on India.
The brokerage noted that overall positioning remains slightly below benchmark allocations, indicating that global investors continue to prefer other emerging markets despite India’s favorable long-term structural story.
According to Jefferies, this cautious stance is not driven by concerns over India's growth prospects but rather by the price investors are being asked to pay for that growth.
Valuations Remain the Biggest Hurdle
One of the key reasons behind the underweight positioning is India’s valuation premium.
Jefferies highlighted that Indian equities continue to trade at roughly a 70% premium compared to broader emerging markets. While investors acknowledge India's superior economic stability and structural growth opportunities, many believe the valuation gap has become difficult to justify.
For global fund managers allocating capital across multiple emerging markets, cheaper markets offering comparable or stronger near-term earnings growth have become increasingly attractive.
As a result, valuation concerns remain one of the most frequently cited reasons for staying underweight on India.
Earnings Growth May Improve, But Not Enough
The brokerage expects earnings growth in India to improve during FY27 and FY28 as domestic demand remains resilient and corporate profitability strengthens.
However, Jefferies believes India's earnings growth could still lag several emerging-market peers despite this improvement.
The report points to a combination of factors, including currency weakness, previous oil-price pressures, and weather-related risks that could affect overall earnings momentum.
While corporate fundamentals remain healthy, investors appear to be waiting for a stronger acceleration in earnings before increasing allocations.
Rupee Weakness Continues to Matter
Currency performance remains another important consideration for global investors.
A weaker rupee reduces returns for foreign investors when converted back into their home currencies, even if local equity markets perform well.
Jefferies noted that currency-related concerns continue to influence relative attractiveness when investors compare India with other emerging-market opportunities.
This has become particularly relevant as several competing markets have witnessed more stable currency trends over recent quarters.
Monsoon Risks Still on Investor Radar
Weather conditions remain an additional factor being monitored closely.
The brokerage highlighted concerns around potential El Niño-related disruptions that could impact rainfall patterns and agricultural output.
While India’s economy has become less dependent on agriculture over time, monsoon performance still plays a meaningful role in rural consumption, food inflation, and overall economic sentiment.
As a result, weather-related uncertainties continue to feature in investment discussions among global fund managers.
Long-Term Story Remains Intact
Despite near-term caution, Jefferies does not question India's long-term investment case.
The brokerage acknowledges that India continues to benefit from strong domestic consumption, improving infrastructure, manufacturing expansion, and favorable demographics.
However, global investors appear unwilling to aggressively increase allocations until valuations become more attractive or earnings growth accelerates further.
For now, the market remains caught between a strong structural growth story and concerns over whether current stock prices already reflect much of that optimism.
Conclusion
Jefferies' latest analysis highlights an interesting contradiction in global investing today. While investors broadly agree that India remains one of the most promising long-term growth stories among emerging markets, most funds continue to remain underweight due to elevated valuations and lingering macroeconomic concerns.
With 61% of large emerging-market funds still underweight on India, future inflows may depend less on growth expectations and more on whether earnings can accelerate enough to justify the premium that Indian equities currently command.
Disclaimer : This article is for informational and educational purposes only and should not be construed as investment advice. The views, estimates, and positioning data referenced are based on research published by Jefferies and other publicly available sources. Investments in equity markets are subject to market risks, including loss of capital. Readers should conduct their own research and consult a SEBI-registered financial advisor before making any investment decisions.
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